Home > Publications . Search All . Browse All . Country . Browse PSC Pubs . PSC Report Series

PSC In The News

RSS Feed icon

Johnston says e-cigs may reverse two-decades of progress on smoking reduction

Mueller-Smith finds incarceration increases the likelihood of committing more, and more serious, crimes

Bloome says racial residential segregation is self-perpetuating

Highlights

Bob Willis awarded 2015 Jacob Mincer Award for Lifetime Contributions to the Field of Labor Economics

David Lam is new director of Institute for Social Research

Elizabeth Bruch wins Robert Merton Prize for paper in analytic sociology

Elizabeth Bruch wins ASA award for paper in mathematical sociology

Next Brown Bag

PSC Brown Bags will be back fall 2015


Internal Control and External Manipulation: A Model of Corporate Income Tax Evasion

Publication Abstract

Chen, Kong-pin, and C. Y. Cyrus Chu. 2005. "Internal Control and External Manipulation: A Model of Corporate Income Tax Evasion." RAND Journal of Economics, 36(1): 151-164.

We offer a formal model of corporate income tax evasion. While individual tax evasion is essentially a portfolio-selection problem, corporate income tax evasion is much more complicated. When the owner of a firm decides to evade taxes, not only does she risk being detected by the tax authorities, more importantly, the optimal compensation scheme offered to the employees will also be altered. Specifically, due to the illegal nature of tax evasion, the contract offered to the manager is necessarily incomplete. This creates a distortion in the manager's effort and reduces the efficiency of the contract. Tax evasion thus increases the profit retained by the firm not only at the risk of being detected, but also at the cost of efficiency loss in internal control.

Browse | Search : All Pubs | Next