Optimal Tax Enforcement with Fallible AI Auditors: False Positives, Deterrence, and Endogenous Precision

Tax administrations use predictive scores to select audits, but the number of audits is an equilibrium outcome rather than a direct measure of enforcement. We study a committed score-based policy with heterogeneous firms, binary tax evasion, bounded statutory penalties, and an extra resource cost when compliant firms are investigated. A power receiver-operating-characteristic technology separates the conditional audit risk faced by evaders from false-positive rates and aggregate audit volume. We prove threshold dominance within the score-only policy class and characterize a unique enforcement choice under a sufficient convexity condition. Higher false-positive costs reduce conditional deterrence, whereas higher administrative audit costs can strengthen it. Better information raises optimized cost-adjusted fiscal value, but audit volume, net treasury receipts, and resource surplus need not rise. A certified receipts decline reflects the authority accepting weaker deterrence to save external costs. A constructive open parameter region exhibits stronger deterrence, fewer audits, and higher resource surplus. Endogenous precision equates its marginal fiscal value with investment cost; comparative statics depend on the compliance regime. Seeded numerical exercises and counterexample searches document the limits of stronger claims. The analysis concerns screening errors, assumes accurate subsequent investigation, and distinguishes its fiscal objective from social welfare. This record is a non-peer-reviewed theoretical working paper. Generative AI and coding agents assisted literature discovery, coding, symbolic checks, numerical implementation, language editing, LaTeX preparation and internal review. Kun Huang retains full responsibility. All references were verified, and numerical results use executable illustrative models without private data. AI internal reviews are not human peer review.

Authors

Institutions

Publication Details

Journal
Zenodo (CERN European Organization for Nuclear Research)
Published
2026-10-05
DOI
https://doi.org/10.5281/zenodo.23124761
Primary Topic
Taxation and Compliance Studies
Type
preprint
Controls
|||
ALL TIME
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
preprint

Optimal Tax Enforcement with Fallible AI Auditors: False Positives, Deterrence, and Endogenous Precision

Kun Huang
Zenodo (CERN European Organization for Nuclear Research)
Taxation and Compliance Studies
preprint

Optimal Tax Enforcement with Fallible AI Auditors: False Positives, Deterrence, and Endogenous Precision

Kun Huang
preprint en

Abstract

Tax administrations use predictive scores to select audits, but the number of audits is an equilibrium outcome rather than a direct measure of enforcement. We study a committed score-based policy with heterogeneous firms, binary tax evasion, bounded statutory penalties, and an extra resource cost when compliant firms are investigated. A power receiver-operating-characteristic technology separates the conditional audit risk faced by evaders from false-positive rates and aggregate audit volume. We prove threshold dominance within the score-only policy class and characterize a unique enforcement choice under a sufficient convexity condition. Higher false-positive costs reduce conditional deterrence, whereas higher administrative audit costs can strengthen it. Better information raises optimized cost-adjusted fiscal value, but audit volume, net treasury receipts, and resource surplus need not rise. A certified receipts decline reflects the authority accepting weaker deterrence to save external costs. A constructive open parameter region exhibits stronger deterrence, fewer audits, and higher resource surplus. Endogenous precision equates its marginal fiscal value with investment cost; comparative statics depend on the compliance regime. Seeded numerical exercises and counterexample searches document the limits of stronger claims. The analysis concerns screening errors, assumes accurate subsequent investigation, and distinguishes its fiscal objective from social welfare. This record is a non-peer-reviewed theoretical working paper. Generative AI and coding agents assisted literature discovery, coding, symbolic checks, numerical implementation, language editing, LaTeX preparation and internal review. Kun Huang retains full responsibility. All references were verified, and numerical results use executable illustrative models without private data. AI internal reviews are not human peer review.

Zenodo (CERN European Organization for Nuclear Research)
Wuhan University (CN)
Taxation and Compliance Studies
AI Navigator

Ask Laika to Summarize, Analyze, and Connect papers live on the map.

Summarize Papers & Methodologies

Extract key findings, datasets, and comparative methods across publications.

Benchmark Rankings & Visual Analytics

Rank top research institutions, authors, funders, topics, and journals by Field-Weighted Citation Impact (FWCI) and paper volume with instant charts.

Connect Distant Disciplines

Bridge topological clusters on the map to find hidden collaborative intersections.

Optimal Tax Enforcement with Fallible AI Auditors: False Positives, Deterrence, and Endogenous Precision — Kun Huang · Zenodo (CERN European Organization for Nuclear Research) (2026) | TGRS Research Map | TGRS