ABSTRACT
Income tax policy in most countries is implemented and enforced by a procedure that requires taxpayers to report their income in a preliminary round of information transmission. Based on this information some reports are then audited and penalties are applied to detected evaders. The tax compliance problem has attracted much academic attention. In particular, optimal mixtures of tax policy, auditing probabilities and penalties have been studied. Lots of useful insights about the economics of enforcement emerged from this literature (see Mookherjee, 1989; Andreoni et al. 1998). Perhaps somewhat surprisingly most authors usually abstract from the fact that in reality auditing has to be done by employees of the enforcement authority who might not automatically share its goals. Usually auditing activities are modelled by an impersonal auditing technology, which can be operated at some cost by the enforcer in line with his objectives.
