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Workshops on EndNote, NIH reporting, and publication altmetrics, Jan 26 through Feb 7, ISR

2017 PAA Annual Meeting, April 27-29, Chicago

NIH funding opportunity: Etiology of Health Disparities and Health Advantages among Immigrant Populations (R01 and R21), open Jan 2017

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Mon, Jan 23, 2017 at noon:
Decline of cash assistance and child well-being, Luke Shaefer

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.

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