Policy forum: Domestic Tax Arbitration: Some Economic Considerations

Abstract

In this article, we discuss the economic arguments for and against domestic tax arbitration. Beyond the standard benefits and costs widely discussed by the literature on private arbitration, we emphasize two additional concerns: agency costs (because there is a significant principal-agent problem within the government) and fast lane effect (less public investment in improving tax courts). We conclude that the skepticism echoed by legal economists contrasts with the more optimistic view shared by other legal scholars and policymakers.