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Game Theory Applied to Business Decision Making under Fiscalization in Croatia: Analysis, Equilibrium, and Policy Recommendations

Author

Listed:
  • Katarina Justic Jozicic

    (Juraj Dobrila University of Pula, Croatia)

  • Katarina Kostelic

    (Juraj Dobrila University of Pula, Croatia)

  • Marinko Skare

    (Juraj Dobrila University of Pula, Croatia)

Abstract

The Croatian Fiscalization Law implemented in Croatia in 2013 created dynamic interaction and significant consequences for business and the Government. We examine the influence of the Fiscalization Law on decision making of businesses and its consequences. The paper provides an overview and analysis of the implementation process, business decisions, interactions between business and Tax Administration, as well as the consequences. Financial benefits of tax evasion form a clear motivation for businesses, but noncompliance could lead to losses due to penalties. Given the decision-making under risk, the interaction between a business and Tax Administration should be formed as a game model enriched with empirical data. Given the empirical data, while businesses show tendency to deviate, Government generates gain. Hence, it is necessary to examine the equilibrium: how much deviation will the Government tolerate before raising penalties, and which amount of risk will business be willing to take in order to evade taxes.

Suggested Citation

  • Katarina Justic Jozicic & Katarina Kostelic & Marinko Skare, 2018. "Game Theory Applied to Business Decision Making under Fiscalization in Croatia: Analysis, Equilibrium, and Policy Recommendations," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 16(1 (Spring), pages 37-58.
    • Handle: RePEc:mgt:youmgt:v:16:y:2018:i:1:p:37-58
    DOI: 10.26493/1854-6935.16.37-58
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    References listed on IDEAS

    as
    1. Ordeshook,Peter C., 1986. "Game Theory and Political Theory," Cambridge Books, Cambridge University Press, number 9780521315937.
    2. Antoci, Angelo & Russu, Paolo & Zarri, Luca, 2014. "Tax evasion in a behaviorally heterogeneous society: An evolutionary analysis," Economic Modelling, Elsevier, vol. 42(C), pages 106-115.
    3. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    4. Tan, Fangfang & Yim, Andrew, 2014. "Can strategic uncertainty help deter tax evasion? An experiment on auditing rules," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 161-174.
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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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