Optimal auditing and insurance in a dynamic model of tax compliance

• 成果类型: Article
• 署名作者: Ravikumar, B.; Zhang, Yuzhe
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - St. Louis; Texas A&M University System; Texas A&M University College Station
• 刊物名称: THEORETICAL ECONOMICS
• ISSN/ISSBN: 1555-7561
• DOI: 10.3982/TE737
• 发表日期: 2012-05-01
• 页码: 241-282
• 关键词: Tax auditing; tax compliance; optimal taxation; stochastic costly state verification

摘要

We study the optimal auditing of a taxpayer's income in a dynamic principalagent model of hidden income. Taxpayers in our model initially have low income and stochastically transit to high income that is an absorbing state. A low-income taxpayer who transits to high income can underreport his true income and evade his taxes. With a constant absolute risk-aversion utility function and a costly and imperfect auditing technology, we show that the optimal auditing mechanism in our model consists of cycles. Within each cycle, a low-income taxpayer is initially unaudited, but if the duration of low-income reports exceeds a threshold, then the auditing probability becomes positive. That is, the tax authority guarantees that the taxpayer is not audited until the threshold duration is reached. We also find that auditing becomes less frequent if the auditing cost is higher or if the variance of income is lower.