This article makes a bridge between the theory of optimal auditing and the scoring methodology in an asymmetric … fraud. We show that the optimal auditing strategy takes the form of a “Red Flags Strategy” which consists in referring … claims to a Special Investigative Unit (SIU) when certain fraud indicators are observed. The auditing policy acts as a …

A robust prediction from the tax evasion literature is that optimal auditing induces a regressive bias in e¤ective tax …