The Role of Agents in Fraudulent Activities: Evidence from the Housing Market in China

47 Pages Posted: 24 Jan 2020

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Weida Kuang

Renmin University of China - School of Business

Long Wang

ShanghaiTech University - School of Entrepreneurship and Management

Zoe Yang

The Chinese University of Hong Kong - CUHK Business School

Date Written: December 24, 2019

Abstract

This paper examines the role that agents play in fraudulent activities in the housing market in China. Using a representative sample of housing transactions in Beijing from 2014 to 2017, we investigate the existence and magnitudes of the so-called Yin-Yang contracts, and explore whether and how agents affect tax evasion. First, we find that agents can learn the monitoring distance of local tax authorities through their cumulative experiences and strategically report prices as close as possible to the internal guideline prices set by local authorities. At the same time, agents' involvement in tax evasion is significantly affected by the tax evasion behaviors of their peers. Second, we show that agents’ work experiences contribute to creating more severe Yin-Yang contracts in the presence of loosening financial constraints, and vice versa. Our results suggest that agents' expertise becomes more important for buyers who face a trade-off between reporting higher to borrow more from the bank and reporting lower to evade taxes.

Keywords: Tax evasion; housing market interventions; housing market

JEL Classification: R21, R28

Suggested Citation

Agarwal, Sumit and Kuang, weida and Wang, Long and Yang, Yang, The Role of Agents in Fraudulent Activities: Evidence from the Housing Market in China (December 24, 2019). Available at SSRN: https://ssrn.com/abstract=3507754 or http://dx.doi.org/10.2139/ssrn.3507754

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Weida Kuang

Renmin University of China - School of Business ( email )

Beijing
China

Long Wang

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

Yang Yang (Contact Author)

The Chinese University of Hong Kong - CUHK Business School ( email )

7/F, Cheng Yu Tung Building
12 Chak Cheung Street, Hong Kong
Hong Kong
Hong Kong

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