Working Paper: NBER ID: w1759
Authors: Joel Slemrod; Shlomo Yitzhaki
Abstract: This paper addresses the optimal degree of law enforcement regarding tax evasion. It derives the conditions that characterize the optimal size of a tax collection agency, and then provides a simple interpretation of the conditions in terms of excess burden.The paper clarified earlier findings that suggest that the optimal size should be set higher than a simple cost-benefit calculation would indicate. It concludes with a numerical example that illustrates the optimality condition and demonstrates that a policy based on a naive cost-benefit analysis of the tax collection agency could result in a substantial overcommitment of resources.
Keywords: Tax evasion; Tax collection agency; Optimal size; Public finance
JEL Codes: H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increasing the budget of the tax collection agency (H26) | Increased tax revenues (H29) |
| Increasing the size of the tax collection agency (H26) | Greater likelihood of detecting tax evasion (H26) |
| Greater likelihood of detecting tax evasion (H26) | Increased expected tax revenues (H29) |
| Optimal size of the tax collection agency (H21) | Marginal revenue from increasing the size exceeds marginal cost (D40) |
| Government policy decisions (D78) | Taxpayer behavior (H32) |