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Decentralized Deterrence, with an Application to Labor Tax Auditing

Author

Listed:
  • Edoardo Di Porto
  • Nicola Persico
  • Nicolas Sahuguet

Abstract

This paper studies a new strategic auditing game in which atomistic auditors maximize the success rate of audits, and provides a method to calibrate its parameters based on audit data. Calibrating the model to Italian auditing data, we provide an estimate of tax evasion based on (non-random) audit data alone. Counterfactual simulation of the model quantifies the costs and benefits of alternative auditing policies. We compare decentralized enforcement with a counterfactual "commitment policy," and compute the loss from the former. (JEL H25, H26, M42)

Suggested Citation

  • Edoardo Di Porto & Nicola Persico & Nicolas Sahuguet, 2013. "Decentralized Deterrence, with an Application to Labor Tax Auditing," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 35-62, February.
    • Handle: RePEc:aea:aejmic:v:5:y:2013:i:1:p:35-62
    Note: DOI: 10.1257/mic.5.1.35
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    References listed on IDEAS

    as
    1. Brian Erard & Jonathan S. Feinstein, 1994. "Honesty and Evasion in the Tax Compliance Game," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 1-19, Spring.
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    4. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    5. Parkash Chander & Louis L. Wilde, 1998. "A General Characterization of Optimal Income Tax Enforcement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(1), pages 165-183.
    6. Parkash Chander, 1998. "A Stronger Measure of Risk Aversion and a General Characterization of Optimal Income Tax Enforcement," Economics Working Paper Archive 399, The Johns Hopkins University,Department of Economics.
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    Citations

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    Cited by:

    1. Edoardo Di Porto & Leandro Elia & Cristina Tealdi, 2013. "The "emersion" effect: an ex post and ex ante social program evaluation on labor tax evasion in Italy," Working Papers 2/2013, IMT School for Advanced Studies Lucca, revised Jun 2013.
    2. Levine, David K. & Modica, Salvatore, 2016. "Peer discipline and incentives within groups," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 19-30.
    3. Calel, Raphael & Dechezlepretre, Antoine & Venmans, Frank, 2023. "Policing carbon markets," LSE Research Online Documents on Economics 120565, London School of Economics and Political Science, LSE Library.
    4. Montalvo, José G. & Piolatto, Amedeo & Raya, Josep, 2020. "Transaction-tax evasion in the housing market," Regional Science and Urban Economics, Elsevier, vol. 81(C).
    5. Levine, David K. & Modica, Salvatore, 2017. "Size, fungibility, and the strength of lobbying organizations," European Journal of Political Economy, Elsevier, vol. 49(C), pages 71-83.
    6. David K Levine & Salvatore Modica, 2013. "Peer Discipline and the Strength of Organizations," Levine's Bibliography 786969000000000713, UCLA Department of Economics.
    7. Appelgren, Leif, 2020. "A survey of models for determining optimal audit strategies," Advances in accounting, Elsevier, vol. 48(C).
    8. Edoardo Di Porto & Leandro Elia & Cristina Tealdi, 2017. "Informal work in a flexible labour market," Oxford Economic Papers, Oxford University Press, vol. 69(1), pages 143-164.

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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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    1. Decentralized Deterrence, with an Application to Labor Tax Auditing (AEJ:MI 2013) in ReplicationWiki

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