Compatibility in Tax Reporting

Lipatov, Vilen (2006): Compatibility in Tax Reporting.

Abstract

We consider corporate tax evasion when business partners have different attitudes towards aggressive tax accounting. There are costs of uncoordinated tax reports, both in terms of catching inspectors´ attention and running accounts. If these costs are small, there exist a unique stable Nash equilibrium of the game between the tax authority and a population of heterogeneous firms. In this equilibrium, the relation between compatibility costs and compliance is non-monotonic and depends on the curvature of auditing function. However, compatibility costs reduce non-compliance in low cheating regimes and may enhance it when many �firms are cheating. This provides one rationale for de veloping countries to be cautious with employing refined auditing schemes and for developed countries to promote complicated accounting procedures.

• Item Type: MPRA Paper
• Institution: European University Institute
• Language: English
• Keywords: tax evasion, compatibility, coordination, business partners, tax ac- counting
• Subjects: H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance

References

Alm, J. and M. Mckee (2004). Tax compliance as a coordination game. Journal of Economic Behavior & Organization 54, 297-312.

James Andreoni, Brian Erard and Jonathan Feinstein. Tax Compliance. Journal of Economic Literature, June 1998, pp. 818-860.

Bayer, R. and Cowell, F. A. (2005) "Tax Compliance and Firms' Strategic Interdependence" Journal of Public Economics 93, pp 1131-1143 (2009).

Frank Cowell. The Economics of Tax Evasion, MIT Press, 1990.

K. Crocker and J. Slemrod. Corporate Tax Evasion with Agency Costs. Journal of Public Economics, vol. 89(9-10), pages 1593-160, September 2005.

Michael Graetz, Jennifer Reinganum and Louis Wilde. The Tax Compliance Game: Towards an Interactive Theory of Law Enforcement. Journal of Law, Economics and Organization, 2(1), pp. 1-32, 1986.

V. Lipatov. Evolution of Tax Evasion. Unpublished manuscript, 2003.

V. Lipatov. Corporate Evasion: a Case for Specialists. Unpublished manuscript, 2005.

Jenifer Reinganum and Louis Wilde. Equilibrium Verification and Reporting Policies in a Model of Tax Compliance. International Economic Review, 27(3), pp. 739-60, 1986.

Sánchez, M. (2006). Divide and conquer: Tax evasion as a global game. Distributional Analysis Discussion Paper 80, STICERD, London School of Economics, London WC2A 2AE.

Schneider F. and Enste D. Shadow Economies: Size, Causes, and Consequences. Journal of Economic Literature, pp.77-114, 2000

Sumina O. Judges worked out a new model for VAT reimbursement. Moscow Accountant, February 2006 (in Russian)

Jörgen W. Weibull. Evolutionary Game Theory. MIT Press, 1995.