IDEAS home Printed from https://ideas.repec.org/a/spr/joevec/v32y2022i3d10.1007_s00191-022-00776-5.html
   My bibliography  Save this article

Taxation and evasion: a dynamic model

Author

Listed:
  • A. E. Biondo

    (University of Catania)

  • G. Burgio

    (Universitat Rovira i Virgili)

  • A. Pluchino

    (University of Catania and INFN Sezione di Catania)

  • D. Puglisi

    (University of Catania)

Abstract

In this paper we study tax evasion by means of a unified framework, based on a behavioral approach, where each individual decision with respect to tax compliance is driven by either personal evaluations of the available information, correlated to income and the perception of the quality of the public good, and social influences, derived by the known decision of neighbors. Our model relies on individual utility functions and describes the tax-evasion problem by means of a personal evolutionary scheme, in which each citizen dynamically adapts her behavior as a response to changing economic and social factors. We will show basic economic intuitions on the relevance of penalties, imitation, satisfaction and risk aversion by means of an analytical model and its agent-based companion version, in order to analyse different elements influencing tax evasion and their dynamic effects. In particular, it is shown how the tax-evasion probability changes as a function of the risk-aversion and specific focus is dedicated to the role played by non-monetary elements of utility in inducing high levels of tax compliance also at substantially reduced fines.

Suggested Citation

  • A. E. Biondo & G. Burgio & A. Pluchino & D. Puglisi, 2022. "Taxation and evasion: a dynamic model," Journal of Evolutionary Economics, Springer, vol. 32(3), pages 797-826, July.
    • Handle: RePEc:spr:joevec:v:32:y:2022:i:3:d:10.1007_s00191-022-00776-5
    DOI: 10.1007/s00191-022-00776-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00191-022-00776-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s00191-022-00776-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Benno Torgler, 2002. "Speaking to Theorists and Searching for Facts: Tax Morale and Tax Compliance in Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 16(5), pages 657-683, December.
    2. Alstadsæter, Annette & Jacob, Martin & Michaely, Roni, 2017. "Do dividend taxes affect corporate investment?," Journal of Public Economics, Elsevier, vol. 151(C), pages 74-83.
    3. Lars P. Feld & Bruno S. Frey, 2002. "Trust breeds trust: How taxpayers are treated," Economics of Governance, Springer, vol. 3(2), pages 87-99, July.
    4. Aurélie Bonein & Cécile Bazart & Sascha Hokamp & Gotz Seibold, 2016. "Behavioural economics and tax evasion: calibrating an agent-based econophysics model with experimental tax compliance data," Post-Print hal-02062366, HAL.
    5. Fortin, Bernard & Lacroix, Guy & Villeval, Marie-Claire, 2007. "Tax evasion and social interactions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2089-2112, December.
    6. James Alm & Kim M. Bloomquist & Michael McKee, 2017. "When You Know Your Neighbour Pays Taxes: Information, Peer Effects and Tax Compliance," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 587-613, December.
    7. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance With Experimental Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(1), pages 107-114, March.
    8. Torgler, Benno & Schneider, Friedrich, 2009. "The impact of tax morale and institutional quality on the shadow economy," Journal of Economic Psychology, Elsevier, vol. 30(2), pages 228-245, April.
    9. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
    10. Benno Torgler & Christoph A. Schaltegger, 2005. "Tax Morale and Fiscal Policy," CREMA Working Paper Series 2005-30, Center for Research in Economics, Management and the Arts (CREMA).
    11. Simon Munzert & Peter Selb & Anita Gohdes & Lukas F. Stoetzer & Will Lowe, 2021. "Tracking and promoting the usage of a COVID-19 contact tracing app," Nature Human Behaviour, Nature, vol. 5(2), pages 247-255, February.
    12. Maria Letizia Bertotti & Giovanni Modanese, 2016. "Microscopic models for the study of taxpayer audit effects," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 27(09), pages 1-15, September.
    13. Panayiotis Nicolaides, 2014. "Tax Compliance Social Norms and Institutional Quality: An Evolutionary Theory of Public Good Provision," Taxation Papers 46, Directorate General Taxation and Customs Union, European Commission.
    14. Kirchler, Erich & Hoelzl, Erik & Wahl, Ingrid, 2008. "Enforced versus voluntary tax compliance: The "slippery slope" framework," Journal of Economic Psychology, Elsevier, vol. 29(2), pages 210-225, April.
    15. Prinz, Aloys & Muehlbacher, Stephan & Kirchler, Erich, 2014. "The slippery slope framework on tax compliance: An attempt to formalization," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 20-34.
    16. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance with Experimental Data," National Tax Journal, National Tax Association, vol. 45(1), pages 107-14, March.
    17. James Alm, 2012. "Measuring, explaining, and controlling tax evasion: lessons from theory, experiments, and field studies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 54-77, February.
    18. Sascha Hokamp & Michael Pickhardt, 2010. "Income Tax Evasion in a Society of Heterogeneous Agents - Evidence from an Agent-based Model," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 541-553.
    19. Pluchino, Alessandro & Rapisarda, Andrea & Garofalo, Cesare, 2010. "The Peter principle revisited: A computational study," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(3), pages 467-472.
    20. Poterba, James M., 1987. "How burdensome are capital gains taxes?: Evidence from the United States," Journal of Public Economics, Elsevier, vol. 33(2), pages 157-172, July.
    21. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470, Elsevier.
    22. Pellizzari, Paolo & Rizzi, Dino, 2014. "Citizenship and power in an agent-based model of tax compliance with public expenditure," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 35-48.
    23. Craig W. Kirkwood, 2004. "Approximating Risk Aversion in Decision Analysis Applications," Decision Analysis, INFORMS, vol. 1(1), pages 51-67, March.
    24. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-373, August.
    25. Crane, Steven E & Nourzad, Farrokh, 1987. "On the Treatment of Income Tax Rates in Empirical Analysis of Tax Evasion," Kyklos, Wiley Blackwell, vol. 40(3), pages 338-348.
    26. Duncan J. Watts & Steven H. Strogatz, 1998. "Collective dynamics of ‘small-world’ networks," Nature, Nature, vol. 393(6684), pages 440-442, June.
    27. Alm, James & Yunus, Mohammad, 2009. "Spatiality and Persistence in U.S. Individual Income Tax Compliance," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(1), pages 101-124, March.
    28. Alessio Emanuele Biondo, 2019. "Order book modeling and financial stability," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(3), pages 469-489, September.
    29. Andrei, Amanda L. & Comer, Kevin & Koehler, Matthew, 2014. "An agent-based model of network effects on tax compliance and evasion," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 119-133.
    30. Alessandro Pluchino & Alessio Emanuele Biondo & Andrea Rapisarda, 2018. "Talent Versus Luck: The Role Of Randomness In Success And Failure," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 21(03n04), pages 1-31, May.
    31. Steven E. Crane & Farrokh Nourzad, 1987. "On the Treatment of Income Tax Rates in Empirical Analysis of Tax Evasion," Kyklos, Wiley Blackwell, vol. 40(3), pages 338-348, August.
    32. Bernasconi, Michele, 1998. "Tax evasion and orders of risk aversion," Journal of Public Economics, Elsevier, vol. 67(1), pages 123-134, January.
    33. Kirchler,Erich, 2007. "The Economic Psychology of Tax Behaviour," Cambridge Books, Cambridge University Press, number 9780521876742.
    34. M. L. Bertotti & G. Modanese, 2016. "Microscopic models for the study of taxpayer audit effects," Papers 1602.08467, arXiv.org.
    35. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    36. Richard Vale, 2015. "A Model for Tax Evasion with Some Realistic Properties," Papers 1508.02476, arXiv.org.
    37. Natalia Levenko & Karsten Staehr, 2021. "Tax compliance in post-transition: You and your friends matter, not the government," Bank of Estonia Working Papers wp2021-7, Bank of Estonia, revised 10 Nov 2021.
    38. Shlomo Yitzhaki, 1987. "On the Excess Burden of Tax Evasion," Public Finance Review, , vol. 15(2), pages 123-137, April.
    39. Alessio Emanuele Biondo & Alessandro Pluchino & Andrea Rapisarda & Dirk Helbing, 2013. "Reducing Financial Avalanches By Random Investments," Papers 1309.3639, arXiv.org, revised Nov 2013.
    40. Torgler, Benno, 2002. "Speaking to Theorists and Searching for Facts: Tax Morale and Tax Compliance in Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 16(5), pages 657-683, December.
    41. James Alm & Kim M. Bloomquist & Michael McKee, 2017. "When You Know Your Neighbour Pays Taxes: Information, Peer Effects and Tax Compliance," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 587-613, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. L. S. Di Mauro & A. Pluchino & A. E. Biondo, 2018. "A Game of Tax Evasion: evidences from an agent-based model," Papers 1809.08146, arXiv.org.
    2. James Alm, 2019. "What Motivates Tax Compliance?," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 353-388, April.
    3. James Alm & Matthias Kasper, 2020. "Laboratory Experiments," Working Papers 2008, Tulane University, Department of Economics.
    4. Semjén, András, 2017. "Az adózói magatartás különféle magyarázatai [Various explanations for tax compliance]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 140-184.
    5. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
    6. James Alm & Carolyn J. Bourdeaux, 2013. "Applying Behavioral Economics to the Public Sector," Hacienda Pública Española / Review of Public Economics, IEF, vol. 206(3), pages 91-134, September.
    7. Torgler, Benno & Schneider, Friedrich & Schaltegger, Christoph A., 2007. "With or Against the People? The Impact of a Bottom-Up Approach on Tax Morale and the Shadow Economy," Berkeley Olin Program in Law & Economics, Working Paper Series qt6331x6vz, Berkeley Olin Program in Law & Economics.
    8. Bayer, Ralph-C & Sutter, Matthias, 2009. "The excess burden of tax evasion--An experimental detection-concealment contest," European Economic Review, Elsevier, vol. 53(5), pages 527-543, July.
    9. Benno Torgler & Friedrich Schneider & Christoph Schaltegger, 2010. "Local autonomy, tax morale, and the shadow economy," Public Choice, Springer, vol. 144(1), pages 293-321, July.
    10. Benno Torgler & Friedrich Schneider & Christoph Schaltegger, 2010. "Local autonomy, tax morale, and the shadow economy," Public Choice, Springer, vol. 144(1), pages 293-321, July.
    11. Bernasconi, Michele & Corazzini, Luca & Seri, Raffaello, 2014. "Reference dependent preferences, hedonic adaptation and tax evasion: Does the tax burden matter?," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 103-118.
    12. Michele Bernasconi, Luca Corazzini, Raffaello Seri, 2012. "Tax Evasion: Does the Tax Burden Matter?," ISLA Working Papers 43, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy.
    13. Gebhard Kirchgässner, 2011. "Tax Morale, Tax Evasion and the Shadow Economy," Chapters, in: Friedrich Schneider (ed.), Handbook on the Shadow Economy, chapter 10, Edward Elgar Publishing.
    14. Torgler, Benno & Schneider, Friedrich & Schaltegger, Christoph A., 2007. "With or Against the People? The Impact of a Bottom-Up Approach on Tax Morale and the Shadow Economy," Berkeley Olin Program in Law & Economics, Working Paper Series qt6331x6vz, Berkeley Olin Program in Law & Economics.
    15. James Alm & Kay Blaufus & Martin Fochmann & Erich Kirchler & Peter N. C. Mohr & Nina E. Olson & Benno Torgler, 2020. "Tax Policy Measures to Combat the SARS-CoV-2 Pandemic and Considerations to Improve Tax Compliance: A Behavioral Perspective," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 76(4), pages 396-428.
    16. James Alm, 2017. "Is Economics Useful for Public Policy?," Southern Economic Journal, John Wiley & Sons, vol. 83(4), pages 835-854, April.
    17. James Alm & Kim M. Bloomquist & Michael McKee, 2017. "When You Know Your Neighbour Pays Taxes: Information, Peer Effects and Tax Compliance," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 587-613, December.
    18. Kastlunger, Barbara & Kirchler, Erich & Mittone, Luigi & Pitters, Julia, 2009. "Sequences of audits, tax compliance, and taxpaying strategies," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 405-418, June.
    19. Ho Fai Chan & Uwe Dulleck & Jonas Fooken & Naomi Moy & Benno Torgler, 2023. "Cash and the Hidden Economy: Experimental Evidence on Fighting Tax Evasion in Small Business Transactions," Journal of Business Ethics, Springer, vol. 185(1), pages 89-114, June.
    20. Leopoldo Fergusson & Carlos Molina & Juan Felipe Riaño, 2019. "Consumers as VAT “Evaders”: Incidence, Social Bias, and Correlates in Colombia," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 21-67, April.

    More about this item

    Keywords

    Tax evasion; Tax policy; Monte carlo simulations; Complex networks;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joevec:v:32:y:2022:i:3:d:10.1007_s00191-022-00776-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.