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DARP Paper
Tax Compliance and Firmsí Strategic Interdependence
Ralph Bayer and Frank A Cowell
February 2006
Paper No' DARP 081:
Full Paper (pdf)

JEL Classification: H20;H21

Tags: tax compliance; evasion; oligopoly

We focus on a relatively neglected area of the tax-compliance literature in economics, the behaviour of firms. We examine the impact of alternative audit rules on receipts from a tax on profits in the context of strategic inter-dependence of firms. In the market firms may compete in terms of either output or price. The enforcement policy can have an effect on firms’ behaviour in two dimensions - their market decisions as well as their compliance behaviour. An appropriate design of the enforcement policy can thus have a “double dividend” by manipulating firms in both dimensions.