Tax Evasion and the Remuneration of Tax Auditors in a Corrupt Tax Administration

This paper examines how different remuneration alternatives for the tax auditors in a corrupt tax administration can provide them incentives to work harder towards discovering evasion. The model is built on the interaction between a potential tax evader and a tax auditor that can either be corrupt or honest. In the Bayesian Nash Equilibrium of the model it is found that corruption provides tax officials incentives to work harder in finding evasion. When trying to increase compliance levels, it is more effective to give the tax auditors a share of the evasion fine rather that increasing their lump-sum income