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Endogenous Tax Compliance and Macroeconomic Performance Driven by Satisficing Evolutionary Dynamics

Author

Listed:
  • Leonardo Barros Torres
  • Gilberto Tadeu Lima
  • Jaylson Jair da Silveira

Abstract

We incorporate tax evasion to a demand-led macrodynamic model of capacity utilization and output growth rate. The frequency of tax evaders is endogenously time-varying, driven by imitation-augmented satisficing evolutionary dynamics involving pecuniary and non-pecuniary factors reflecting the distribution of tax morale across taxpayers. Consequently, the microdiversity of tax compliance behavior and the macrodynamics of economic activity are co-evolutionarily coupled. Matching empirical evidence, long-run heterogeneity in tax compliance is a stable evolutionary equilibrium, and the higher the median tax morale, the lower the frequency of tax evaders. Other comparative statics matching empirical evidence are obtained analytically and through numerical simulations.

Suggested Citation

  • Leonardo Barros Torres & Gilberto Tadeu Lima & Jaylson Jair da Silveira, 2024. "Endogenous Tax Compliance and Macroeconomic Performance Driven by Satisficing Evolutionary Dynamics," Working Papers, Department of Economics 2024_10, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2024wpecon10
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    More about this item

    Keywords

    Tax compliance behavior; tax morale; satisficing evolutionary dynamics; capacity utilization; output growth rate;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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