Harassment, corruption and tax policy

This paper introduces ‘harassment’ in a model of bribery and corruption. We characterize the harassment equilibrium and show that taxpayers, with all possible levels of income, participate in such equilibrium. Harassment has a regressive bias. Harassment costs as such may not affect tax revenue. However, when the decision to file tax returns is endogenized, harassment cost can affect the filing pattern and, hence, the revenue collection. We study the nature of the equilibrium under imperfect information when different types of taxpayers and auditors are introduced in the system.