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Citizenship and Power in an Agent-based Model of Tax Compliance with Public Expenditure

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  • Paolo Pellizzari

    ()
    (Department of Economics, University Of Venice Cà Foscari)

  • Dino Rizzi

    (Department of Economics, University Of Venice Cà Foscari)

Abstract

In this paper we present a model of tax compliance with heterogeneous agents who maximize their individual utility based on income and the conjectured level of per capita public expenditure. We formally include psychological drivers in this model. These drivers affect individual behavior, such as risk aversion, together with appreciation of public expenditure, expectations about peers’ compliance and a natural inclination to comply, all of which we summarize in a quality termed “citizenship”. The enforcement system, based on random inspections, is standard and only partially known to agents. The agent-based model is simulated under a variety of settings, representing different “societies”. We use the artificial data produced by the model to estimate the effects of taxpayers’ traits on personal tax behavior and to build a compliance societal slippery slope. At the individual level, we find a positive dependence of compliance on all variables, with the significant exception of the tax rate, which has a negative impact. As far as societies are concerned, we show how aggregate tax compliance depends on composite indices of citizenship and power, and we find that the former is more important than the latter.

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File URL: http://www.unive.it/media/allegato/DIP/Economia/Working_papers/Working_papers_2012/WP_DSE_pellizzari_rizzi_24_12.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Venice "Ca' Foscari" in its series Working Papers with number 2012_24.

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Length: 28
Date of creation: 2012
Date of revision: 2012
Handle: RePEc:ven:wpaper:2012_24

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Keywords: Tax evasion; public expenditure; agent-based models;

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  1. Michael Pickhardt & Goetz Seibold, 2011. "Income Tax Evasion Dynamics: Evidence from an Agent-based Econophysics Model," Papers 1112.0233, arXiv.org.
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  18. Matthew D. Rablen, 2010. "Tax Evasion and Exchange Equity: A Reference-Dependent Approach," Public Finance Review, , , vol. 38(3), pages 282-305, May.
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  20. Gordon, James P. P., 1989. "Individual morality and reputation costs as deterrents to tax evasion," European Economic Review, Elsevier, Elsevier, vol. 33(4), pages 797-805, April.
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Cited by:
  1. Benno Torgler, 2014. "Can Tax Compliance Research Profit from Biology?," QuBE Working Papers, QUT Business School 025, QUT Business School.

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