Consider a taxpayer with exogenous income y> 0 who faces a tax rate t, where 0...

 

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Consider a taxpayer with exogenous income y> 0 who faces a tax rate t, where 0 < t < 1. She is asked to report an income level x to the government and pay taxes according to the report, i.e., tx. If the taxpayer is honest, she will report x = y, but she may cheat by reporting a lower income 0 Consider a taxpayer with exogenous income y> 0 who faces a tax rate t, where 0 < t < 1. She is asked to report an income level x to the government and pay taxes according to the report, i.e., tx. If the taxpayer is honest, she will report x = y, but she may cheat by reporting a lower income 0

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a If there is an audit Income y pOz 0z If there is no audit Income x 1py ... View the full answer