The Optimal Size of a Tax Collection Agency

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Abstract
This paper addresses the optimal degree of law enforcement regarding tax evasion. It derives the conditions that characterize the optimal size of a tax collection agency, and then provides a simple interpretation of the conditions in terms of excess burden.The paper clarified earlier findings that suggest that the optimal size should be set higher than a simple cost-benefit calculation would indicate. It concludes with a numerical example that illustrates the optimality condition and demonstrates that a policy based on a naive cost-benefit analysis of the tax collection agency could result in a substantial overcommitment of resources.
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