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Tax Overpayments, Tax Evasion, and Book-Tax Differences

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LASZLO GOERKE

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Abstract

A strictly risk-averse manager makes joint decisions on a firm's tax payments and book profit declarations according to accounting standards. It is analyzed how the incentives to overpay or evade taxes and to inflate book profits are influenced by (1) the composition of the manager's remuneration, (2) the ability to control the manager's actions, (3) the costs of making untruthful profit declarations, and (4) the tax rate. If the firm's owner or the government take into account these effects when pursuing their own objectives, the changes in tax payments and book profit declarations become theoretically more ambiguous. Copyright © 2008 Wiley Periodicals, Inc..

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9779.2008.00380.x
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Publisher Info
Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 10 (2008)
Issue (Month): 4 (08)
Pages: 643-671
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Handle: RePEc:bla:jpbect:v:10:y:2008:i:4:p:643-671

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References listed on IDEAS
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  1. Mihir A. Desai, 2003. "The Divergence between Book Income and Tax Income," NBER Chapters, in: Tax Policy and the Economy, Volume 17, pages 169-208 National Bureau of Economic Research, Inc. [Downloadable!]
  2. Desai, Mihir A. & Dharmapala, Dhammika, 2006. "Corporate tax avoidance and high-powered incentives," Journal of Financial Economics, Elsevier, vol. 79(1), pages 145-179, January. [Downloadable!] (restricted)
    Other versions:
  3. Crocker, Keith J. & Slemrod, Joel, 2005. "Corporate tax evasion with agency costs," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1593-1610, September. [Downloadable!] (restricted)
    Other versions:
  4. Mihir A. Desai, 2005. "The Degradation of Reported Corporate Profits," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 171-192, Fall. [Downloadable!] (restricted)
  5. Goldman, Eitan & Slezak, Steve L., 2006. "An equilibrium model of incentive contracts in the presence of information manipulation," Journal of Financial Economics, Elsevier, vol. 80(3), pages 603-626, June. [Downloadable!] (restricted)
  6. Michelle Hanlon & Terry Shevlin, 2005. "Book-Tax Conformity for Corporate Income: An Introduction to the Issues," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 101-134 National Bureau of Economic Research, Inc. [Downloadable!]
  7. Robin Boadway & Motohiro Sato, 2000. "The Optimality of Punishing Only the Innocent: The Case of Tax Evasion," International Tax and Public Finance, Springer, vol. 7(6), pages 641-664, December. [Downloadable!] (restricted)
  8. Douglas A. Shackelford & Joel Slemrod & James M. Sallee, 2007. "A Unifying Model of How the Tax System and Generally Accepted Accounting Principles Affect Corporate Behavior," NBER Working Papers 12873, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Desai, Mihir A. & Dyck, Alexander & Zingales, Luigi, 2007. "Theft and taxes," Journal of Financial Economics, Elsevier, vol. 84(3), pages 591-623, June. [Downloadable!] (restricted)
  10. Shackelford, Douglas A. & Shevlin, Terry, 2001. "Empirical tax research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 321-387, September. [Downloadable!] (restricted)
  11. Hanlon, Michelle & Laplante, Stacie Kelley & Shevlin, Terry, 2005. "Evidence for the Possible Information Loss of Conforming Book Income and Taxable Income," Journal of Law & Economics, University of Chicago Press, vol. 48(2), pages 407-42, October.
  12. Keith J. Crocker & Joel Slemrod, 2006. "The Economics of Earnings Manipulation and Managerial Compensation," NBER Working Papers 12645, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November. [Downloadable!] (restricted)
  14. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier. [Downloadable!] (restricted)
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