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Why can modern governments tax so much? An agency model of firms as fiscal intermediaries

Kleven, Henrik Jacobsen, Kreiner, Claus Thustrup and Saez, Emmanuel (2016) Why can modern governments tax so much? An agency model of firms as fiscal intermediaries. Economica, 83 (330). 219 - 246. ISSN 0013-0427

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Identification Number: 10.1111/ecca.12182


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.

Item Type: Article
Official URL:
Additional Information: © 2016 The London School of Economics and Political Science
Divisions: Economics
Subjects: H Social Sciences > HJ Public Finance
Date Deposited: 14 Apr 2016 10:55
Last Modified: 15 Apr 2024 02:33

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