Strategic tax auditing

There is a well published on tax competition between authorities, where the object of competition are tax rates and occasionally public services. But there is another neglected aspect: competition on the thoroughness of tax auditing. This is relevant in countries where local authorities are also in charge of collecting the taxes of the central government.

Alexander Libman and Lars Feld consider the case of modern Russia and find that indeed the willingness to audit depends on the strength of the Moscow. This has two channels: the first is about where audit revenues are directed and whether audit happen in the first place. If there were no audit variations, the share of revenue going to the local government should not vary across regions. Yet, Libman and Feld find that there are systematic variations that can be explained by the power structure, in particular during the loose administration of Boris Yeltsin.