Tax Evasion as an Outcome of Organizational Design

This study analyzes tax evasion as the outcome of the internal organization of the tax bureau-namely, the design of the employees ’ incentives and work pow. We compare two “extreme ’ ’ alternatives: the tax bureau as a system of stochastic, costly, in-depth audits and zero incentives for tax agents (SA), or as a “bargaining organization ” (BRO) in which tax agents are induced to bargain with taxpayers, and tax returns are audited in depth only if no agreement is reached. W e j n d that collection costs in BRO are lower than in SA, partly because fewer returns are examined, but that incentive costs are higher. In general, BRO is likely to be more efficient if the tax bureau’s commissioner can induce agents to be suffi-ciently tough negotiators while keeping the incentive costs low. 1