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Income Tax Evasion Dynamics: Evidence from an Agent-based Econophysics Model

  • Michael Pickhardt
  • Goetz Seibold

We analyze income tax evasion dynamics in a standard model of statistical mechanics, the Ising model of ferromagnetism. However, in contrast to previous research, we use an inhomogeneous multi-dimensional Ising model where the local degrees of freedom (agents) are subject to a specific social temperature and coupled to external fields which govern their social behavior. This new modeling frame allows for analyzing large societies of four different and interacting agent types. As a second novelty, our model may reproduce results from agent-based models that incorporate standard Allingham and Sandmo tax evasion features as well as results from existing two-dimensional Ising based tax evasion models. We then use our model for analyzing income tax evasion dynamics under different enforcement scenarios and point to some policy implications.

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File URL: http://arxiv.org/pdf/1112.0233
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Paper provided by arXiv.org in its series Papers with number 1112.0233.

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Date of creation: Dec 2011
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Handle: RePEc:arx:papers:1112.0233
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  1. Seibold, Götz & Pickhardt, Michael, 2013. "Lapse of time effects on tax evasion in an agent-based econophysics model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(9), pages 2079-2087.
  2. Bernard Fortin & Guy Lacroix & Marie-Claire Villeval, 2004. "Tax Evasion and Social Interactions," Cahiers de recherche 0432, CIRPEE.
  3. Brock,W.A. & Durlauf,S.N., 2000. "Discrete choice with social interactions," Working papers 7, Wisconsin Madison - Social Systems.
  4. Lima, F.W.S., 2012. "Three-state majority-vote model on square lattice," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(4), pages 1753-1758.
  5. Zsombor Z. Meder & Andras Simonovits & Janos Vincze, 2012. "Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality," IEHAS Discussion Papers 1203, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  6. Zaklan, Georg & Lima, F.W.S. & Westerhoff, Frank, 2008. "Controlling tax evasion fluctuations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(23), pages 5857-5861.
  7. Myles, Gareth D. & Naylor, Robin A., 1996. "A model of tax evasion with group conformity and social customs," European Journal of Political Economy, Elsevier, vol. 12(1), pages 49-66, April.
  8. Shlomo Yitzhaki, 1987. "On the Excess Burden of Tax Evasion," Public Finance Review, , vol. 15(2), pages 123-137, April.
  9. Alm, James & Cronshaw, Mark B & McKee, Michael, 1993. "Tax Compliance with Endogenous Audit Selection Rules," Kyklos, Wiley Blackwell, vol. 46(1), pages 27-45.
  10. Hokamp, Sascha & Pickhardt, Michael, 2010. "Income tax evasion in a society of heterogeneous agents: Evidence from an agent-based model," CAWM Discussion Papers 35, Center of Applied Economic Research Münster (CAWM), University of Münster.
  11. Erard, Brian & Feinstein, Jonathan S, 1994. "The Role of Moral Sentiments and Audit Perceptions in Tax Compliance," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 70-89.
  12. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
  13. Alm, James & McClelland, Gary H. & Schulze, William D., 1992. "Why do people pay taxes?," Journal of Public Economics, Elsevier, vol. 48(1), pages 21-38, June.
  14. Georg Zaklan & Frank Westerhoff & Dietrich Stauffer, 2008. "Analysing tax evasion dynamics via the Ising model," Papers 0801.2980, arXiv.org.
  15. repec:eap:articl:v:42:y:2012:i:2:p:171-188 is not listed on IDEAS
  16. 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.
  17. Korobow, Adam & Johnson, Chris & Axtell, Robert, 2007. "An Agent–Based Model of Tax Compliance with Social Networks," National Tax Journal, National Tax Association, vol. 60(3), pages 589-610, September.
  18. D. Stauffer & S. Solomon, 2007. "Ising, Schelling and self-organising segregation," The European Physical Journal B - Condensed Matter and Complex Systems, Springer, vol. 57(4), pages 473-479, 06.
  19. repec:eap:articl:v:42:y:2012:i:2:p:153-170 is not listed on IDEAS
  20. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  21. Henrik Jacobsen Kleven & Martin B. Knudsen & Claus Thustrup Kreiner & Søren Pedersen & Emmanuel Saez, 2011. "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark," Econometrica, Econometric Society, vol. 79(3), pages 651-692, 05.
  22. repec:att:wimass:9610 is not listed on IDEAS
  23. Nordblom, Katarina & Zamac, Jovan, 2011. "Endogenous Norm Formation over the Life Cycle. The case of tax evasion," Working Papers in Economics 511, University of Gothenburg, Department of Economics.
  24. 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.
  25. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  26. Paolo Pellizzari & Dino Rizzi, 2011. "A Multi-Agent Model of Tax Evasion with Public Expenditure," Working Papers 2011_15, Department of Economics, University of Venice "Ca' Foscari".
  27. Srinivasan, T. N., 1973. "Tax evasion: A model," Journal of Public Economics, Elsevier, vol. 2(4), pages 339-346.
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  29. repec:eap:articl:v:42:y:2012:i:2:p:133-152 is not listed on IDEAS
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