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Administrative Decentralization And Tax Compliance: A Transactional Cost Perspective, Wei Cui

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A common phenomenon in tax administration in developing countries is that tax is collected not according to the rules of law but according to informal agreements between taxpayers and tax collectors. This article offers a novel explanation of this phenomenon in the Chinese context in terms of administrative decentralization. Administrative decentralization is defined as the concentration of government functions at the lowest ranks of a geographically-dispersed bureaucracy. Decentralization increases communication costs associated with the implementation of law, and changes the structure of taxpayers’ costs in obtaining knowledge about the law. As a result, a “semi-compliant” type of behavior, involving many …