A MODEL OF TAX EVASION THROUGH THE AGENCY THEORY PRISM

The agency theory, as the mechanism for analysing the principal-agent relationship, is dominantly applicated in the sphere of corporate governance. But the agency theory may also be used in many different areas and situations when the principal's welfare, in the presence of information asymmetry, depends on the agent's actions. Therefore, due to the fact that this theory is rather rudimentary, it may be applied on other areas as well, such as the lemon market, insurance market, working vacancies, parliamentary election and similar. The aim of this research paper is application of the agency theory in the area of tax policy. To be more precise, this paper is an attempt to explain the problem of tax evasion through the prism of elements of the agency theory. In this paper a model will be specified in which the government with its fiscal sovereignty is considered to be the principal and the tax payer is considered to be the agent. The tax evasion problem is considered as the agency problem. Elements of the agency theory that are present in the problem of tax evasion include the opposition of goals between the government and the tax payer, definition of "rules of the game", information asymmetry, moral hazard when illegally evading tax payments and agency costs, i.e. tax evasion costs. The purpose of studying agency problem in the context of tax evasion is to find a mechanism that will enable the principal-agent problem or to offer adequate solutions in the case of its occurrence. Consistent with the prior, the aim of this research paper is identification of possible solutions for prevention of the tax evasion problem or at least offering certain solutions for mitigation of this problem, as evident from the model that determines mutual relationships between different elements of the analysed mechanisms. It is also necessary to consider the limitations of the model, such as omission of different risk propensities between the government and the tax payer and avoidance of the adverse agent selection problem.