Using Divide and Conquer to Improve Tax Collection: Theory and Laboratory Evidence

Sylvain Chassang, Lucia Del Carpio and Samuel Kapon
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Sylvain Chassang: Princeton University
Lucia Del Carpio: INSEAD
Samuel Kapon: Princeton University

Working Papers from Princeton University, Department of Economics, Center for Economic Policy Studies.

Abstract: We consider a government collecting taxes from a large number of tax-payers using limited enforcement capacity. Under random enforcement, limited capacity results in multiple equilibria: if most agents comply, limited enforcement is sufficient to dissuade individual misbehavior; if most agents do not comply, enforcement capacity is overstretched and fails to dissuade misbehavior. In settings without behavioral frictions, prioritized enforcement strategies can implement high collection as the unique rationalizable outcome. Motivated by a field implementation opportunity, we investigate both theoretically and experimentally the extent to which this insight extends to environments with incomplete information and bounded rationality.

Keywords: tax collection; government capacity; divide and conquer (search for similar items in EconPapers)
JEL-codes: H20 H29 (search for similar items in EconPapers)
Date: 2022-05
New Economics Papers: this item is included in nep-exp and nep-pub
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:pri:cepsud:299

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