Tax Collection and Corruption in Fiscal Bodies

The present paper considers two types of models of interaction between a tax authority and a group of taxpayers. The first type of model assumes no corruption, and the strategy of the authority is the probability of auditing a taxpayer depending on his/her declared income and other available information. The purpose is to maximise the net tax revenue. The authors determine the optimal strategies for proportional and progressive taxation, assuming risk neutrality amongst taxpayers. The second type of model permits the bribing of an auditor by a taxpayer. The authors determine the optimal probabilities of audit and review by the tax authority and then study the comparative statics of net revenue with respect to the tax rate and penalties for poor auditing.Russia, transition, tax enforcement, corruption, game-theory models