General Equilibrium Model with Tax Audit and Endogenous Choice between Labor Market and Self-Employment

— A general equilibrium model, which describes the interaction of heterogeneous agents who choose between the labor market and self-employment and the state, which plays the role of an inspection body (auditor) in a model that controls the fact of tax evasion, is considered. It is shown that in the case of information asymmetry, the tax rate that maximizes the amount of tax revenues increases. Under information asymmetry, the Laffer curve approaches its analog with symmetric information if the penalties or the budgets of the tax office are high. Despite the fact that in equilibrium the amount of penalties paid is zero, they have a significant effect on the amount of tax revenues. As an effective deterrent to tax violators, they are increasing the amount of tax collections at a slower pace.