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Tax Collection with Agency Costs: Private Contracting or Government Bureaucrats?

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  • Toma, Eugenia Froedge
  • Toma, Mark

Abstract

Historically, governments contracted with private agents known as tax farmers to collect taxes. This paper develops a theoretical framework for determining when a welfare-maximizing government should choose tax farmers over bureaucratic tax collectors. While bureaucratic collectors have an incentive to shirk and raise collection costs above least costs, profit-maximizing private collectors tend to reduce tax evasion below the optimal level. Generally, the choice of collection methods depends on a comparison of the welfare loss associated with monitoring in the bureaucratic setting and the welfare loss associated with overdetection of evasion in the private setting. Copyright 1992 by The London School of Economics and Political Science.

Suggested Citation

  • Toma, Eugenia Froedge & Toma, Mark, 1992. "Tax Collection with Agency Costs: Private Contracting or Government Bureaucrats?," Economica, London School of Economics and Political Science, vol. 59(233), pages 107-120, February.
  • Handle: RePEc:bla:econom:v:59:y:1992:i:233:p:107-20
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    Cited by:

    1. Roel Dom, 2017. "Semi-Autonomous Revenue Authorities in Sub-Saharan Africa: Silver Bullet or White Elephant," Discussion Papers 2017-01, University of Nottingham, CREDIT.
    2. Mikael Priks, 2005. "Optimal Rent Extraction in Pre-Industrial England and France – Default Risk and Monitoring Costs," CESifo Working Paper Series 1464, CESifo Group Munich.
    3. Meng-Yu Liang & C.C. Yang, 2007. "On the Budget-Constrained IRS: Equilibrium and Equilibrium and efficiency," IEAS Working Paper : academic research 07-A002, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    4. Umberto Galmarini & Simone Pellegrino & Massimiliano Piacenza & Gilberto Turati, 2014. "The runaway taxpayer," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(3), pages 468-497, June.
    5. Frank Flatters & W. Macleod, 1995. "Administrative corruption and taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(3), pages 397-417, October.
    6. Jacob Paroush & Jonas Prager, 1999. "Criteria for contracting-out decisions when contractors can deceive," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 27(4), pages 376-383, December.
    7. Nipon Poapongsakorn & Kovit Charnvitayapong & Duangmanee Laovakul & Somchai Suksiriserekul & Bev Dahlby, 2000. "A Cost-Benefit Analysis of the Thailand Taxpayer Survey," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(1), pages 63-82, February.

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