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How much should we fund the IRS?

Author

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  • Hanjoon M. Jung
  • Meng‐Yu Liang
  • C.C. Yang

Abstract

Tax enforcement not only detects tax evasion (the direct effect) but also enforces voluntary compliance (the indirect effect). This paper explores implications of the indirect effect for the optimal size of the budget allocated to the Internal Revenue Service (IRS). The conventional wisdom prescribes that the size of the budget allocated to the IRS should always fall short of the level where an additional dollar allocated would return just an additional dollar of revenue. In a model where taxpayers are subject to a small amount of incomplete information, we show that after taking into consideration the indirect effect of tax enforcement, it is possible that the optimal prescription is opposite to the conventional wisdom.

Suggested Citation

  • Hanjoon M. Jung & Meng‐Yu Liang & C.C. Yang, 2022. "How much should we fund the IRS?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(1), pages 120-139, February.
    • Handle: RePEc:bla:jpbect:v:24:y:2022:i:1:p:120-139
    DOI: 10.1111/jpet.12532
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    References listed on IDEAS

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    Cited by:

    1. Sebastián Castillo, 2024. "Tax policy design in a hierarchical model with occupational decisions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(5), pages 1295-1341, October.
    2. Sebastian Castillo, 2022. "Tax Policy Design in a Hierarchical Model with Occupational Decisions," Working Papers 2, Finnish Centre of Excellence in Tax Systems Research.
    3. Zhiyong (John) Liu & Zhewei Wang & Zhendong Yin, 2022. "When is duplication of effort a good thing in law enforcement?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(4), pages 682-708, August.

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