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Auditing with Signals
Author(s) -
Macho–Stadler Inés,
Pérez–Castrillo J. David
Publication year - 2002
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/1468-0335.00268
Subject(s) - taxpayer , commit , audit , revenue , enforcement , simple (philosophy) , tax revenue , business , econometrics , economics , microeconomics , accounting , public economics , computer science , database , macroeconomics , philosophy , epistemology , political science , law
This paper is a first step in analysing the use of statistical information about taxpayers’ incomes by tax audit authorities. In a very simple model, we consider the design of the audit strategy when the tax authority can commit to it and has free access to a signal correlated with the taxpayer’s true income. We discuss the optimal enforcement policy and compare it with the optimal one when only self–reported income is considered. Our main result postulates that the well–known regressive bias of revenue–maximizing audit rules may be reversed into a progressive one when signals are used.