The economic literature on audit design has almost entirely ignored tax agencies' practical reliance on whistle-blowers for the successful conduct of tax investigations. The authors compare the tax agency's performance under a one-round blind-audit policy and a two-round...

Very often tax collectors initiate an audit on the basis of observed spending capacity that does not seem to conform with declared income. This requires the skillful evader to carefully consider his or her expenditures on conspicuous consumption to avoid drawing the attention of the tax...