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

PSC In The News

RSS Feed icon

Smock cited in amicus brief for Supreme Court case on citizenship rights for foreign-born children of unwed parents

Levy, Buchmueller and colleagues examine Medicaid expansion's impact on ER visits

ISR data show large partisan gap in consumer expectations for economy

More News

Highlights

MiCDA Research Fellowship - applications due July 21, 2017

U-M awarded $58 million to develop ideas for preventing and treating health problems

Bailey, Eisenberg , and Fomby promoted at PSC

Former PSC trainee Eric Chyn wins PAA's Dorothy S. Thomas Award for best paper

More Highlights

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