This paper deals with the issue of whether the Revenue Service (RS) should be allowed, or even encouraged, to negotiate settlement agreements with taxpayers subject to examination. We consider the case in which the RS enjoys discretion at the settlement stage, its stance being guided by...

This paper develops a model of tax enforcement in which the tax agency has discretionary power to make pre-audit settlement offers. Settlements can take the form of either general amnesties or individual deals. It is shown that pre-audit settlements allow the agency to overcome its limited...