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

Toma, Eugenia Froedge; Toma, Mark

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.

TAX collection; TAX evasion; TAX shelters; FARMERS; AGRICULTURAL scientists; AGRICULTURE

Economica, 1992, Vol 59, Issue 233, p107

0013-0427

Academic Journal

10.2307/2555069