Audit probability versus effectiveness: The Beckerian approach revisited

The Beckerian approach to tax compliance examines how a tax authority can maximize social welfare by trading‐off audit probability against the fine rate on undeclared tax. This paper offers an alternative examination of the privately optimal behavior of a tax authority tasked by government to maximize expected revenue. The tax authority is able to trade‐off audit probability against audit effectiveness, but takes the fine rate as fixed in the short run. I find that the tax authority's privately optimal audit strategy does not maximize voluntary compliance, and that voluntary compliance is nonmonotonic as a function of the tax authority's budget. Finally, the tax authority's privately optimal effective fine rate on undeclared tax does not exceed two at interior optima.