Tax Compliance and Firms’ StrategicInterdependence

Abstract

We focus on a relatively neglected area of the tax-compliance literature ineconomics, the behaviour of firms. We examine the impact of alternativeaudit rules on receipts from a tax on profits in the context of strategicinter-dependence of firms. In the market firms may compete in terms ofeither output or price. The enforcement policy can have an effect onfirms' behaviour in two dimensions - their market decisions as well astheir compliance behaviour. An appropriate design of the enforcementpolicy can thus have a "double dividend" by manipulating firms in bothdimensions.Tax compliance, evasion, oligopoly