Taxation Without Information: The Institutional Foundations of Modern Tax Collection
20(1) University of Pennsylvania Journal of Business Law 93-146 (2017)
40 Pages Posted: 6 Mar 2017 Last revised: 17 May 2018
Date Written: March 4, 2017
A prominent strand of recent economic and legal scholarship hypothesizes that third-party information reporting (TPIR) is essential to modern tax collection. The slogan, “no taxation without information,” has captured researchers’ imagination and is even often presented as self-evident truth. This Article offers a fundamentally different perspective, arguing that the emphasis on TPIR is misplaced. TPIR is used largely in the collection of the personal income tax but not of many other types of modern taxes. Even for the personal income tax, TPIR also has close substitutes which do not involve information transmission to the government. Theoretically, appeals to TPIR are vitiated by the puzzle of payor compliance. And most purported empirical evidence for the effectiveness of TPIR fails to provide causal identification.
I suggest that to better understand the institutional foundations of modern tax collection, we should stop thinking of business firms as “fiscal intermediaries” in a game of deterrence against tax evaders. Instead, it would be more fruitful to conceive of firms as sites of social cooperation under the rule of law. The co-evolution of the business firm and modern regulatory law may have enabled modern governments to practice precisely “taxation without information”.
Keywords: Information Reporting, Tax Compliance, Theory of Compliance, Theory of the Firm, Law and Development, State Capacity
JEL Classification: H20, H26, K20, K34, P48
Suggested Citation: Suggested Citation