Signaling with Audits: Mimicry, Wasteful Expenditures, and Non-Compliance in a Model of Tax Enforcement
12 Pages Posted: 14 Jun 2014
Date Written: January 28, 2014
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: Suggested Citation