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Faculty Research Working Paper Series
Richard Zeckhauser
Frank Plumpton Ramsey Professor of Political Economy
phone: (617)495-1174
fax: (617)384-9340
Signaling with Audits: Mimicry, Wasteful Expenditures, and Non-Compliance in a Model of Tax Enforcement
Kotowski, Maciej, David Weisbach, and Richard Zeckhauser. "Signaling with Audits: Mimicry, Wasteful Expenditures, and Non-Compliance in a Model of Tax Enforcement." HKS Faculty Research Working Paper Series RWP14-001, January 2014.
Abstract
The audit policy of a tax authority can signal its audit effectiveness. We model this process and show that in limited circumstances an ineffective authority can masquerade as being effective. We show that high maximal penalties imply underreporting of income.
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