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American Economic Journal: Microeconomics: Vol. 5 No. 1 (February 2013)

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Decentralized Deterrence, with an Application to Labor Tax Auditing

Article Citation

Di Porto, Edoardo, Nicola Persico, and Nicolas Sahuguet. 2013. "Decentralized Deterrence, with an Application to Labor Tax Auditing." American Economic Journal: Microeconomics, 5(1): 35-62.

DOI: 10.1257/mic.5.1.35

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)

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Authors

Di Porto, Edoardo (U Rome "La Sapienza")
Persico, Nicola (Northwestern U)
Sahuguet, Nicolas (Montreal, Canada)

JEL Classifications

H25: Business Taxes and Subsidies including sales and value-added (VAT)
H26: Tax Evasion
M42: Auditing

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