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Consider the game between taxpayer and revenue service described in the payoffs matrix below.
a. For what value of T is (Evade, No audit) a Nash equilibrium?
b. Can (Evade, Audit) ever be a Nash equilibrium? What does this imply about the punishment structure?
c. Does a simultaneous move game capture the essence of the auditing problem?
On January 1 2011: C/D = 0.2 T/D = 1.8 ER/D = 0.3 MB = USD. 12000000 Required reserve ratio on checkable deposits = 0.10 Required reserve ratio on time deposits = 0.07 These ratios have been defined in class and are assumed constant.
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