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Audit Probability versus Effectiveness: The Beckerian Approach Revisited


  • Matthew D. Rablen, Department of Economics and Finance, Brunel University, Uxbridge, UB8 3PH ( I thank Gareth Myles, Alessandro Santoro, and two anonymous referees; participants at the 2010 IIPF Congress (Uppsala), LAGV 10 (Marseille), Shadow Economy International Conference (Münster), International Conference on Taxation Analysis and Research (London), and PET 12 (Taipei); and seminar participants at Brunel University for their comments.


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.