Tax riots
By: Marco Bassetto, Christopher Phelan
Contributors: Phelan, Christopher; Federal Reserve Bank of Chicago. Research Department
Series: Working paper series -- WP-2006-4; Working paper series (Federal Reserve Bank of Chicago. Research Department : Online) -- WP-2006-4.
Publisher: Federal Reserve Bank of Chicago
Published: 2006
Place of publication: Chicago, Ill.]
Language: eng
Format: [electronic resource] /
Subjects: Taxpayer compliance
Description: "This paper considers an optimal taxation environment where household income is private information, and the government randomly audits and punishes households found to be underreporting. We prove that the optimal mechanism derived using standard mechanism design techniques has a bad equilibrium (a tax riot) where households underreport their incomes, precisely because other households are expected to do so as well. We then consider three alternative approaches to designing a tax scheme when one is worried about bad equilibria."--Federal Reserve Bank of Chicago web site.
Notes: Title from PDF file as viewed on 10/12/2006.

Includes bibliographical references.

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