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

Sylvain Chassang, Lucia Del Carpio and Samuel Kapon

No 28042, NBER Working Papers from National Bureau of Economic Research, Inc

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 over-stretched and fails to dissuade misbehavior. In settings without behavioral frictions, prioritized enforcement strategies can implement high collection as the unique rationalizable outcome. We investigate both theoretically and experimentally the extent to which this insight extends to environments with incomplete information and bounded rationality.

JEL-codes: C72 C73 C92 D73 D82 D86 H26 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-exp, nep-gth and nep-ore
Note: DEV LE PE POL
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