The strategy of a central authority with respect to income tax evasion

Abstract

In this thesis, we consider a gametheoretical model of income taxation. We take a closer look at the strategy of the central authority with respect to the audit probability of tax returns, given the fact that taxpayers may underdeclare their income. Different cut-off rules are compared to investigate which one optimizes the net tax revenue of the central authority. We conclude by giving the optimal strategy, depending on specific conditions, and apply this result to the Ukrainian and Dutch taxation systems.