Signaling with Audits: Mimicry, Wasteful Expenditures, and Non-Compliance in a Model of Tax Enforcement

12 Pages Posted: 14 Jun 2014

See all articles by Maciej H. Kotowski

Maciej H. Kotowski

Harvard University - Harvard Kennedy School (HKS)

David A. Weisbach

University of Chicago - Law School; Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP)

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Date Written: January 28, 2014

Abstract

The audit policy of a tax authority can signal its audit effectiveness. We model this process and show that in limited circumstances an ineffective authority can masquerade as being effective. We show that high maximal penalties imply underreporting of income.

Keywords: Auditing, Signaling, Taxation

JEL Classification: D82, D86, C71

Suggested Citation

Kotowski, Maciej H. and Weisbach, David and Zeckhauser, Richard J., Signaling with Audits: Mimicry, Wasteful Expenditures, and Non-Compliance in a Model of Tax Enforcement (January 28, 2014). HKS Working Paper No. RWP14-001. Available at SSRN: https://ssrn.com/abstract=2449648 or http://dx.doi.org/10.2139/ssrn.2449648

Maciej H. Kotowski (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

David Weisbach

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-3342 (Phone)
773-702-0730 (Fax)

Center for Robust Decisionmaking on Climate & Energy Policy (RDCEP) ( email )

5735 S. Ellis Street
Chicago, IL 60637
United States

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-496-3783 (Fax)

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