Cost Uncertainty and Taxpayer Compliance |
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Authors: | Email author" target="_blank">Jordi?CaballéEmail author Judith?Panadés |
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Institution: | (1) Unitat de Fonaments de l’Anàlisi Econòmica and CODE, Departament d’Economia i d’Història Econòmica, Universitat Autònoma de Barcelona, Edifici B, 08193 Bellaterra Barcelona, Spain;(2) Unitat de Fonaments de l’Anàlisi Econòmica, Universitat Autònoma de Barcelona, Spain |
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Abstract: | The existence of a private cost borne by audited taxpayers affects the tax enforcement policy. This is so because tax auditors will face now two sources of uncertainty, namely, the typical one associated with taxpayers’ income and that associated with the taxpayers’ idiosyncratic attitude towards tax compliance. Moreover, the inspection policy can be exposed to some randomness from the taxpayers’ viewpoint due to the uncertainty about the audit cost borne by the tax authority. In this paper we provide an unified framework to analyze the effects of all these sources of uncertainty in a model of tax compliance with strategic interaction between auditors and taxpayers. We show that more variance in the distribution of the taxpayers’ private cost of evading raises both tax compliance and the ex-ante welfare of taxpayers. The effects of the uncertainty about the audit cost faced by the tax authority are generally ambiguous. We also discuss the implications of our model for the regressive (or progressive) bias of the effective tax system. |
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Keywords: | tax evasion audit cost |
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