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

28 Pages Posted: 9 Mar 2016

See all articles by Henrik Kleven

Henrik Kleven

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)

Claus Thustrup Kreiner

University of Copenhagen - Department of Economics

Emmanuel Saez

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2016

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.

Suggested Citation

Kleven, Henrik and Kreiner, Claus Thustrup and Saez, Emmanuel, Why Can Modern Governments Tax so Much? An Agency Model of Firms as Fiscal Intermediaries (April 2016). Economica, Vol. 83, Issue 330, pp. 219-246, 2016. Available at SSRN: https://ssrn.com/abstract=2745020 or http://dx.doi.org/10.1111/ecca.12182

Henrik Kleven (Contact Author)

London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Claus Thustrup Kreiner

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Emmanuel Saez

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-4631 (Phone)
510-642-6615 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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