Principal-agent Theoretical Analysis Of Tax Corruption In China

The problems of tax corruption are common all over of the world. In our country, the tax loss caused by the corrupt tax collectors and tax inspectors is huge. This article abstracts the tax corruption problems and views the problems as the collusions among tax payers, tax collectors and tax inspectors. It models the process of the tax corruption and analyzes how the wages paid to and the supervision of the tax collectors and tax inspectors influence the behaviors of the agents. It also analyzes how the corruption of the tax collectors and tax inspectors impacts the goal of the government tax collection, and the costs for the government to fight tax corruption. The conclusions of this article show that, under certain conditions, increasing the wages of the tax collectors and tax inspectors or strengthening the supervision of the tax collectors and tax inspectors may decrease the level of the tax corruption. However, under other conditions such as the condition of tax collectors owning the chances of inner promotion, strengthening the supervision of the tax inspectors may increase the level of corruption of the tax collectors. It means that strengthening the supervision of the tax collectors or the tax inspector may not always effectively fight the tax corruption. In the period of the tax collection, the goal of the government is to maximize the total net tax revenue. But the tax corruption will influence the achievement of this goal. To some extent, it is necessary for the government to make anti-corruption rules and mechanisms. Whereas, the execution of the mechanisms is costly, and the anti-corruption measures need costs to be carried out. These costs not only include the rising wages of the tax collectors and tax inspectors, but also include the expenses of enacting the contract, performing the contract and organizing the group. When the government makes measures to fight the tax corruption, it faces the tradeoff between the achievement of the tax collection goal and the corruption level of the tax collectors and tax inspectors.