Anti-Evasion Auditing Policy in Thepresence of Common Income Shocks

When fairly homogeneous taxpayers are affected by common incomeshocks, a tax agencyamp;apos's optimal auditing strategy consists of auditing alow-income declarer with a probability that (weakly) increases with theother taxpayersamp;apos' declarations. Such policy generates a coordination gameamong taxpayers, who then face both strategic uncertainty - about theequilibrium that will be selected.and fundamental uncertainty - about thetype of agency they face. Thus the situation can be realistically modelledas a global game that yields a unique and usually interior equilibriumwhich is consistent with empirical evidence.Results are also applicable to other areas like regulation or welfarebenefit allocation