Why Can Modern Governments Tax So Much? An Agency Model of Firms as Fiscal Intermediaries

Henrik Jacobsen Kleven, Claus Thustrup Kreiner, Emmanuel Saez

Research output: Contribution to journalArticlepeer-review

84 Scopus citations

Abstract

We develop an agency model explaining why third-party information reporting by firms makes tax enforcement successful. While third-party reporting would be ineffective with frictionless collusion between firms and employees, collusive evasion is impossible to sustain in firms with many employees and accurate business records as any single employee may reveal evasion. We embed our agency model into a macro model where the number of employees grows with development, showing that the tax take evolves as an S-shape driven by changes in third-party information. We show that our model is consistent with a set of stylized facts on taxation and development.

Original languageEnglish (US)
Pages (from-to)219-246
Number of pages28
JournalEconomica
Volume83
Issue number330
DOIs
StatePublished - Apr 1 2016
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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