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Evolution of Tax Evasion

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  • Lipatov, Vilen

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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 966.

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Date of creation: Jun 2003
Date of revision: 06 Dec 2005
Handle: RePEc:pra:mprapa:966

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Keywords: tax evasion; imitation; learning;

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References

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  1. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, MIT Press, vol. 65(3), pages 363-73, August.
  2. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 36(2), pages 818-860, June.
  3. Vasin Alexander & Vasina Polina, 2002. "Tax Optimization under Tax Evasion: The Role of Penalty Constraints," EERC Working Paper Series, EERC Research Network, Russia and CIS 01-09e, EERC Research Network, Russia and CIS.
  4. James M. Poterba, 1987. "Tax Evasion and Capital Gains Taxation," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 436, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Peter Bardsley, 1994. "Tax Compliance games with Imperfect Auditing," Working Papers, School of Economics, La Trobe University 1994.22, School of Economics, La Trobe University.
  6. Joel Slemrod, 2004. "The Economics of Corporate Tax Selfishness," NBER Working Papers, National Bureau of Economic Research, Inc 10858, National Bureau of Economic Research, Inc.
  7. Josef Hofbauer & Karl H. Schlag, 2000. "Sophisticated imitation in cyclic games," Journal of Evolutionary Economics, Springer, Springer, vol. 10(5), pages 523-543.
  8. David E. A. Giles, & Patrick J. Caragata, 1999. "The Learning Path of the Hidden Economy: The Tax Burden and Tax Evasion in New Zealand," Econometrics Working Papers, Department of Economics, University of Victoria 9904, Department of Economics, University of Victoria.
  9. Brian Erard & Jonathan S. Feinstein, 1994. "Honesty and Evasion in the Tax Compliance Game," RAND Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 25(1), pages 1-19, Spring.
  10. Wane, Waly, 2000. "Tax evasion, corruption, and the remuneration of heterogeneous inspectors," Policy Research Working Paper Series, The World Bank 2394, The World Bank.
  11. Karl H. Schlag, 1995. "Why Imitate, and if so, How? A Bounded Rational Approach to Multi-Armed Bandits," Discussion Paper Serie B, University of Bonn, Germany 361, University of Bonn, Germany, revised Mar 1996.
  12. Graetz, Michael J. & Reinganum, Jennifer F. & Wilde, Louis L., . "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 589, California Institute of Technology, Division of the Humanities and Social Sciences.
  13. Eduardo Engel & James R. Hines Jr., 1998. "Understanding Tax Evasion Dynamics," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 47, Centro de Economía Aplicada, Universidad de Chile.
  14. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 38(1), pages 77-114, March.
  15. Reinganum, Jennifer F & Wilde, Louis L, 1986. "Equilibrium Verification and Reporting Policies in a Model of Tax Compliance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(3), pages 739-60, October.
  16. Joel Slemrod & Shlomo Yitzhaki, 2000. "Tax Avoidance, Evasion, and Administration," NBER Working Papers, National Bureau of Economic Research, Inc 7473, National Bureau of Economic Research, Inc.
  17. Sanchez, Isabel & Sobel, Joel, 1993. "Hierarchical design and enforcement of income tax policies," Journal of Public Economics, Elsevier, Elsevier, vol. 50(3), pages 345-369, March.
  18. Schlag, Karl H., 1994. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Discussion Paper Serie B, University of Bonn, Germany 296, University of Bonn, Germany.
  19. Ross Cressman & Jean-Francois Wen & William Morrison, 1998. "On the Evolutionary Dynamics of Crime," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(5), pages 1101-1117, November.
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Cited by:
  1. Constadina Passa & Anastasios Xepapadeas, 2008. "Regulation of Farming Activities: An Evolutionary Approach," Working Papers, University of Crete, Department of Economics 0811, University of Crete, Department of Economics.
  2. Anastasios Xepapadeas & Yannis Petrohilos-Andrianos, . "On the Evolution of Compliance and Regulation with Tax Evading Agents," DEOS Working Papers, Athens University of Economics and Business 1325, Athens University of Economics and Business.
  3. Lipatov, Vilen, 2006. "Tax Evasion and Coordination," MPRA Paper, University Library of Munich, Germany 1251, University Library of Munich, Germany, revised Dec 2006.

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