Imperfect detection of tax evasion in a corrupt tax administration
This article models the imperfect detection of tax evasion motivated by the existence of a corrupt tax administration. Consistent with previous literature, fines and audit probabilities both have a positive effect on compliance. Moreover, the model shows that they have a negative effect on the bribes paid to corrupt tax officials. More corruption decreases compliance levels, giving honest auditors incentives to work harder to detect evasion. Giving inspectors a share of the detected evasion (tax farming) makes auditors work harder; however, increasing their wages reduces their exerted effort to discover evasion. Higher compliance can as well be achieved by hiring more efficient inspectors.
Escobari, D. Imperfect Detection of Tax Evasion in a Corrupt Tax Administration. Public Organiz Rev 12, 317–330 (2012). https://doi.org/10.1007/s11115-011-0172-5
Public Organization Review