TY  - JOUR
AU  - Crocker,Keith J.
AU  - Slemrod,Joel
TI  - Corporate Tax Evasion with Agency Costs
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10690
PY  - 2004
Y2  - August 2004
UR  - http://www.nber.org/papers/w10690
L1  - http://www.nber.org/papers/w10690.pdf
N1  - Author contact info:
Joel Slemrod
University of Michigan Business School
701 Tappan Street
Room R5396
Ann Arbor, MI  48109-1234
Tel: 734/936-3914
Fax: 734-615-4323
E-Mail: jslemrod@umich.edu
AB  - This paper examines corporate tax evasion in the context of the contractual relationship between the shareholders of a firm and a tax manager who possesses private information regarding the extent of legally permissible reductions in taxable income, and who may also undertake illegal tax evasion. Using a costly state falsification framework, we characterize formally the optimal incentive compensation contract for the tax manager and, in particular, how the form of that contract changes in response to alternative enforcement policies imposed by the taxing authority. The optimal contract may adjust to offset, at least partially, the effect of sanctions against illegal evasion, and we find a new and policy-relevant non-equivalence result: penalties imposed on the tax manager are more effective in reducing evasion than are those imposed on shareholders.
ER  -