Tax Evasion with Third-Party Reporting
Kristian Harald Myklatun, OFS Scholarship Recipients 2016.
In this thesis I look at income tax evasion for freelancers and employees in small firms when there is third-party tax reporting. I use a game theoretic framework to study two things. Firstly, how the employee and the employer divide their gains from evasion if they come to an agreement, and secondly, why there is less evasion for freelancers and employees in small firms when there is third-party reporting. For the first question I use the Nash cooperative bargaining approach and adapt it to the situation the employer and the employee are facing. For the second question I find that third-party reporting reduces evasion because it makes underreporting more costly, and because uncertainty about the other person’s tax morale makes both players less willing to suggest evasion.