SFB 303 Discussion Paper No. A - 105
Author: Nitzan, Shmuel, and Joseph Tzur
Title: Taxpayers, Auditors and the Government - An Extended Tax Evasion Game
Abstract: We study a tax evasion game with three types of agents: the government, taxpayers, and auditors. The
analysis focuses on the characteristics of equilibria and their responsiveness to the parameters of the model: the
tax potential and the penalty function. The main contribution of the paper is twofold: first, in marked contrast to
earlier theoretical literature on tax evasion, it provides a framework for analyzing the tax evasion problem
without ignoring the important role of auditors; second, within our proposed model the degree of protection
given to auditors constitutes part of the government's strategy. The endogenous determination of this latter
variable offers new insight into the problem of rationalizing governmental regulation and, in particular,
regulation in the form of protection to particular professions that fulfil auditing or attestation functions.
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Creation-Date: February 1987
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