Evolution of Tax Evasion

Lipatov, Vilen (2003): Evolution of Tax Evasion.

Abstract

In this paper we analyze a tax evasion game with taxpayer learning by imitation. If the authority commits to a fixed auditing probability, a positive share of cheating is obtained in equilibrium. This stands in contrast to the existing literature that yields full compliance of audited taxpayer who are rational, have a lot of information and thus do not need to interact. When the authority adjusts auditing probability every period, cycling in cheating-auditing occurs. Thus, the real life phenomenon of compliance fluctuations is explained within the model rather than by exogenous parameter shifts.

• Item Type: MPRA Paper
• Institution: European University Institute
• Language: English
• Keywords: tax evasion; imitation; learning
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance

References

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