Title

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

Author(s)

Sylvain Chassang Sylvain Chassang (Princeton University)

Lucia Del Carpio Lucia Del Carpio (INSEAD)

Samuel Kapon Samuel Kapon (Princeton University)

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.

Creation Date

2022-05

Section URL ID

Paper Number

299

URL

https://gceps.princeton.edu/wp-content/uploads/2022/06/299_Chassang_government_capacity_theory_22May.pdf

File Function

Jel

H20, H29

Keyword(s)

tax collection, government capacity, divide and conquer

Suppress

false

Series

3