On the evolution of compliance and regulation with tax evading agents

Yannis  Petrohilos-Andrianos; Anastasios  Xepapadeas

doi:10.3934/jdg.2016013

Article Contents

2016, Volume 3, Issue 3: 231-260. Doi: 10.3934/jdg.2016013

This issue Previous Article A Malthus-Swan-Solow model of economic growth Next Article A perturbation approach to a class of discounted approximate value iteration algorithms with borel spaces

On the evolution of compliance and regulation with tax evading agents

Yannis Petrohilos-Andrianos^1, and
Anastasios Xepapadeas^1,

1.
Athens University of Economics and Business, Department of International and European Economic Studies, 76 Patission Street, GR 10434 Athens

Received: December 2015

Revised: March 2016

Published: July 2016

Abstract / Introduction Related Papers Cited by

Abstract

We study the evolution of compliance and regulation with tax-evading agents, allowing for imitation rather than rationality in the evolution of available strategies distribution in the population. The general framework of the approach combines a classical model for tax evasion where agents are imitators rather than rational optimizers and form an endogenized subjective probability of audit. A regulator chooses values to available policy instruments, either myopically or optimally -within an optimal control setup-, always with respect to the behavior of agents. A comparison is drawn between the evolutionary and rational case in order to evaluate the differences that occur.

Keywords:

Mathematics Subject Classification: Primary: 91A22, 91B55; JEL Classification: H26, C73.

Citation:

Related Papers

Cited by

References

[1]	M. G. Allingham and A. Sandmo, Income tax evasion: A theoretical analysis, Journal of public economics, 1 (1972), 323-338.doi: 10.1016/0047-2727(72)90010-2.
[2]	J. Andreoni, B. Erard and J. Feinstein, Tax compliance, Journal of Economic Literature, 36 (1998), 818-860.
[3]	A. Antoci, P. Russu and L. Zarri, Tax evasion in a behaviorally heterogeneous society: An evolutionary analysis, Economic Modelling, 42 (2014), 106-115.doi: 10.1016/j.econmod.2014.06.002.
[4]	P. Bardsley, Tax Compliance Games with Imperfect Auditing, Research paper No. 548, The University of Melbourne Department of Economics, 1994.
[5]	G. S. Becker, Crime and punishment: An economic approach, Journal of Political Economy, 76 (1968), 169-217.
[6]	S. F. Brosnan, N. E. Newton-Fisher and M. Van Vugt, A melding of the minds: When primatology meets personality and social psychology, Personality and Social Psychology Review, 13 (2009), 129-147.doi: 10.1177/1088868309335127.
[7]	K. P. Chen and C. C. Chu, Internal control versus external manipulation: A model of corporate income tax evasion, Rand Journal of Economics, 36 (2005), 151-164.
[8]	European Commission, Taxation Trends in the European Union. Data for the Member States and Norway - National List of Taxes, Scientific report, 2009.
[9]	H. Gintis, Game Theory Evolving: A Problem-Centered Introduction to Modeling Strategic Interaction, Second edition. Princeton University Press, Princeton, NJ, 2009.
[10]	M. J. Graetz, J. F. Reinganum and L. L. Wilde, The tax compliance game: Toward an interactive theory of law enforcement, Journal of Law, Economics, & Organization, 2 (1986), 1-32.
[11]	J. Greenberg, Avoiding tax avoidance: A (repeated) game-theoretic approach, Journal of Economic Theory, 32 (1984), 1-13.doi: 10.1016/0022-0531(84)90071-1.
[12]	M. W. Hirsch and S. Smale, Differential Equations, Dynamical Systems, and Linear Algebra, Academic Press New York, 1974.
[13]	J. Hofbauer and K. Sigmund, Evolutionary game dynamics, Bulletin of the American Mathematical Society, 40 (2003), 479-519.doi: 10.1090/S0273-0979-03-00988-1.
[14]	M. I. Kamien and N. L. Schwartz, Dynamic Optimization: The Calculus of Variations and Optimal Control in Economics and Management, Second edition. Advanced Textbooks in Economics, 31. North-Holland Publishing Co., Amsterdam, 1991.
[15]	V. Lipatov, Evolution of Tax Evasion, MPRA Paper No. 966, European University Institute, 2006.
[16]	J. F. Reinganum and L. L. Wilde, Income tax compliance in a principal-agent framework, Journal of Public Economics, 26 (1985), 1-18.doi: 10.1016/0047-2727(85)90035-0.
[17]	J. F. Reinganum and L. L. Wilde, Equilibrium verification and reporting policies in a model of tax compliance, International Economic Review, 27 (1986), 739-760.doi: 10.2307/2526692.
[18]	L. Samuelson, Evolutionary Games and Equilibrium Selection, vol. 1, The MIT Press, Cambridge, MA, 1997.
[19]	K. H. Schlag, Why imitate, and if so, how?: A boundedly rational approach to multi-armed bandits, Journal of Economic Theory, 78 (1998), 130-156.doi: 10.1006/jeth.1997.2347.
[20]	J. Slemrod, An empirical test for tax evasion, The Review of Economics and Statistics, 67 (1985), 232-238.doi: 10.2307/1924722.
[21]	J. Slemrod and S. Yitzhaki, Tax avoidance, evasion, and administration, Handbook of Public Economics, 3 (2002), 1423-1470.
[22]	A. A. Vasin and P. A. Vasina, Tax Optimization Under Tax Evasion: The Role of Penalty Constraints, Working Paper Series No. 01/09, EERC Research Network, Russia and CIS, 2002.
[23]	W. Wane, Tax Evasion, Corruption, and the Remuneration of Heterogeneous Inspectors, Policy Research Working Paper No. 2394, World Bank, 2000.
[24]	J. W. Weibull, Evolutionary Game Theory, The MIT Press, Cambridge, MA, 1995.
[25]	S. Yitzhaki, Income tax evasion: A theoretical analysis, Journal of Public Economics, 3 (1974), 201-202.doi: 10.1016/0047-2727(74)90037-1.