In this paper we propose a model of how institutional benefits, taxation and government regulations affect the productive activity of private enterprises. We consider an environment in which public officials enforcing tax and regulatory obligations are potentially corruptible, and markets for...

This paper is inscribed in the literature on fiscal fraud and moral of taxpayers. We analyse the attitude of the Spaniards respect to two kinds of fraud: the hiding of income to pay less taxes and the hiding of information to benefit fraudulently from goods and services that otherwise one would...

A 2002 survey of 1089 Czechs and 501 Slovaks, as well as a more limited survey of Hungary, and Poland, indicates that an individual may evade taxes in part if he believes he is receiving substandard government services. We suggest that an individual’s evaluation of the quality of government...

In 1969, Shoup postulated that the presence of interrelated taxes in a tax system would reinforce the system of tax penalty ("self-reinforcing penalty system of taxes"). In this paper, we have tried to formally develop this idea. We find that in order that tax re-enforcement holds, it is...

The two most prominent deadweight losses in public finance are the triangle loss from taxation and the rectangle loss from rent-seeking. This paper suggests that a third type of deadweight loss can rival these two in size and deserves detailed exploration. In the presence of the underground...

Frauds can be explained not only in terms of individual willingness to cheat, but may also be driven by opportunities to behave dishonestly. The audit policy should therefore be different for different categories of agents. This paper focuses on the optimal audit policy when there are two...

Our survey of private manufacturing firms finds the size of hidden ‘unofficial’ activity to be much larger in Russia and Ukraine than in Poland, Slovakia and Romania. A comparison of cross-country averages shows that managers in Russia and Ukraine face higher effective tax rates, worse...

We develop a moral hazard model with auditing where both the principal and the agent can influence the probability that the true state of nature is verified. This setting is widely applicable for situations where fraudulent reporting with costly state verification takes place. However, we use...

We consider an economy composed of two regions. Each of them provides a public good whose benefits reach beyond local boundaries. In case of decentralization, taxes collected by members of a region are spent only on that region's public good. In case of centralization, tax receipts from the two...

This paper investigates multi-item moral hazard with auditing contests. Although the presented model is widely applicable, we choose tax evasion as an exemplary application. We introduce a tax-evasion model where tax authority and taxpayer invest in detection and concealment. The taxpayers have...