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Corporate Tax Evasion, Principal-Agent Model, Tax Enforcement, Multitasking
Abstract:
This paper analyzes firms' tax evasion behavior in a principal-agent model with multitasking. A generalist firm-owner hires a specialist tax manager who chooses the quantity as well as the quality of tax evasion. Higher quality lowers the firm's expected fine for tax evasion. In contrast to earlier literature, we find that asymmetric information inside firms may enhance the efficacy of tax enforcement. This occurs because highly sophisticated tax evasion activities are often difficult to understand and assess for the generalist shareholder, who commissions fewer such activities as a result of this informational disadvantage.
