The role of agents in fraudulent activities: Evidence from the housing market in Beijing

Abstract

This study examines the role played by real estate agents in fraudulent activities in China’s housing market. We show that agents contribute to the formation of Yin–Yang contracts and the magnitude of resulting tax evasion through two possible mechanisms: the learning-by-doing effect and the peer effect. Agents’ cumulative experience allows them to discover local registration authorities’ monitoring capability and strategically register prices close to the internal guideline prices. Moreover, agents’ involvement in tax evasion is significantly affected by the tax evasion behaviors of their peers. The difference-in-differences analyses across two policy shocks show that the involvement of experienced real estate agents exacerbates the magnitude of tax evasion during periods of frequent government policy adjustments.