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The Impact of Public Income Tax Return Disclosure on Tax Avoidance and Tax Evasion - Insights from an Agent-Based Model

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  • Markus Diller
  • Johannes Lorenz
  • David Meier

Abstract

We investigate how public tax return disclosure affects heterogeneous taxpayers' tax avoidance and evasion decisions when they maximize the sum of private expected utility (in line with Allingham and Sandmo, 1972) and social utility (which rewards behavior conforming to social norms). Taxpayers are located on a small-world network and directly observe their neighbors' wealth. Depending on what tax information is disclosed (nothing; net income only; both gross and net income), they can infer their neighbors' behavior with varying precision. Using an agent-based simulation, we find that partial disclosure of tax return information can yield more tax revenue than full disclosure.

Suggested Citation

  • Markus Diller & Johannes Lorenz & David Meier, 2023. "The Impact of Public Income Tax Return Disclosure on Tax Avoidance and Tax Evasion - Insights from an Agent-Based Model," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 79(3), pages 235-274.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2023-0007
    DOI: 10.1628/fa-2023-0007
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    More about this item

    Keywords

    tax avoidance; tax evasion; agent-based modeling; social network; tax information disclosure;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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