Avoiding tax avoidance: A (repeated) game-theoretic approach (Q790025)

The author gives a scheme for reducing tax evasion to an arbitrarily small level within a given enforcement budget. There are three groups, \(G_ l\) a small group with reasonable probability of being audited, \(G_ 2\), a large group with small probability of being audited, and \(G_ 3\) a (theoretically empty) group who are always audited. Audited individuals found truthful are put in \(G_ 1\) (unless they are already in \(G_ 3)\) otherwise they go to \(G_ 3\) if in \(G_ 2\) and to \(G_ 2\) if in \(G_ 1\). A stationary Nash equilibrium occurs with any sufficiently small discount rate.