MATHEMATICAL MODEL OF TAX ENFORCEMENT UNDER CORRUPTION AND TAX EVASION

The creation of effective taxation system appears to be one of the most challenging problems for the economies. This paper represents a mathematical model of tax enforcement for the problem of determining the optimal taxation under tax evasion and corruption (bribery). Our purpose is to find the optimal tax policy SG include tax rate, probability of audit and encouraging percentage that maximizes the government’s net tax revenue under certain constraint which are related to the ”survival” income of taxpayer and encourage of auditors where there are two possible levels of income. Our main result is optimal tax rate and encouraging percentage depend on ”survival” income of taxpayer and effective probability of audit for decreasing tax evasion depends on the penalty coefficient