Tax Overpayments, Tax Evasion, and Book-Tax Differences


  • Laszlo Goerke, Eberhard Karls Universität Tübingen, Department of Economics, Melanchthonstraße 30, D – 72074 Tübingen, Germany (Laszlo.Goerke(at)

  • I greatly appreciate helpful comments by an anonymous referee and an associate editor, whose suggestions and advice particularly inspired Section 5 of the paper. Furthermore, I am grateful to participants of the CESifo Public Sector conference (München), the annual meetings of the Scottish Economic Society (Perth) and the Verein für Socialpolitik (Bonn), and of seminars at CEU Budapest, LMU München, FU Berlin, JoGU Mainz, and FAU Erlangen-Nürnberg. The paper was completed during a visit to the Department of Finance and Management Science at the Norges Handelshøyskole in Bergen. I would like to thank the NHH for its hospitality. The usual disclaimer applies.


A strictly risk-averse manager makes joint decisions on a firm's tax payments and book profit declarations according to accounting standards. It is analyzed how the incentives to overpay or evade taxes and to inflate book profits are influenced by (1) the composition of the manager's remuneration, (2) the ability to control the manager's actions, (3) the costs of making untruthful profit declarations, and (4) the tax rate. If the firm's owner or the government take into account these effects when pursuing their own objectives, the changes in tax payments and book profit declarations become theoretically more ambiguous.