Welcome to the new version of CaltechAUTHORS. Login is currently restricted to library staff. If you notice any issues, please email coda@library.caltech.edu
Published September 15, 2017 | Submitted
Report Open

A Theory of Auditing and Plunder

Abstract

Taxpayers know their income but the IRS does not. The IRS can audit taxpayers to discover their true income, but auditing is costly. We characterize optimal policies for the IRS when it is free to choose tax levies, audit probabilities and penalties. The main results are that optimal policies involve taxes which are monotonically increasing in reported incomes and audit probabilities are monotonically decreasing in reported income. In general optimal schemes involve stochastic auditing of reports and rebates for telling the truth. A theory of optimal plundering is described.

Additional Information

We thank the members of the UCSD and Caltech Theory Workshops for their comments and suggestions. Sobel happily thanks the National Science Foundation for partial support under grant SES-8408655.

Attached Files

Submitted - sswp573.pdf

Files

sswp573.pdf
Files (895.0 kB)
Name Size Download all
md5:43bcca7e4f779855ccc5a750c79e4cfb
895.0 kB Preview Download

Additional details

Created:
August 19, 2023
Modified:
January 14, 2024