Imperfect Detection of Tax Evasion in a Corrupt Tax Administration

This article models the imperfect detection of tax evasion motivated by the existence of a corrupt tax administration. Consistent
with previous literature, fines and audit probabilities both have a positive effect on compliance. Moreover, the model shows
that they have a negative effect on the bribes paid to corrupt tax officials. More corruption decreases compliance levels,
giving honest auditors incentives to work harder to detect evasion. Giving inspectors a share of the detected evasion (tax
farming) makes auditors work harder; however, increasing their wages reduces their exerted effort to discover evasion. Higher
compliance can as well be achieved by hiring more efficient inspectors.