Mugging Tax Evaders: Using Transfers to Diminish Tax Evasion. An Information Processing Approach

Abstract

Agents are required to provide the principal with a standardised receipt from all economic transactions. Taxation of the agents is based on the information on these receipts. To give the agents an incentive to comply with the procedure, the principal imposes a 'transaction tax' on all transactions where money changes possessor. The agent receiving money collects the tax from the agent supplying money. The principal subsequently claims the transaction tax and offers the agent that paid it a complete refund in return for a transaction receipt from the transaction. Together this generates an information structure and incentive mechanism that gives the principal sufficient information to perform simple but extensive bookkeeping that substantially reduces the possibilities for tax evasion and maybe also other forms of criminal economic activity.