IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1611.05690.html
   My bibliography  Save this paper

A decomposition algorithm for computing income taxes with pass-through entities and its application to the Chilean case

Author

Listed:
  • Javiera Barrera
  • Eduardo Moreno
  • Sebastian Varas

Abstract

Income tax systems with pass-through entities transfer a firm's incomes to the shareholders, which are taxed individually. In 2014, a Chilean tax reform introduced this type of entity and changed to an accrual basis that distributes incomes (but not losses) to shareholders. A crucial step for the Chilean taxation authority is to compute the final income of each individual, given the complex network of corporations and companies, usually including cycles between them. In this paper, we show the mathematical conceptualization and the solution to the problem, proving that there is only one way to distribute incomes to taxpayers. Using the theory of absorbing Markov chains, we define a mathematical model for computing the taxable incomes of each taxpayer, and we propose a decomposition algorithm for this problem. This allows us to compute the solution accurately and with the efficient use of computational resources. Finally, we present some characteristics of the Chilean taxpayers' network and computational results of the algorithm using this network.

Suggested Citation

  • Javiera Barrera & Eduardo Moreno & Sebastian Varas, 2016. "A decomposition algorithm for computing income taxes with pass-through entities and its application to the Chilean case," Papers 1611.05690, arXiv.org.
    • Handle: RePEc:arx:papers:1611.05690
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1611.05690
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Congressional Budget Office, 2012. "Taxing Businesses Through the Individual Income Tax," Reports 43750, Congressional Budget Office.
    2. Congressional Budget Office, 2012. "Taxing Businesses Through the Individual Income Tax," Reports 43750, Congressional Budget Office.
    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. Javiera Barrera & Eduardo Moreno & Sebastián Varas K., 2020. "A decomposition algorithm for computing income taxes with pass-through entities and its application to the Chilean case," Annals of Operations Research, Springer, vol. 286(1), pages 545-557, March.
    2. Piotr Lewandowski & Pawel Chrostek & Jan Baran & Iga Magda & Maciej Lis & Anna Pankowiec & Piotr Szczerba & Maciej Bitner & Magdalena Kaminska, 2014. "Employment in Poland 2013. Labour in the Age of Structural Change," Books and Reports published by IBS, Instytut Badan Strukturalnych, number zwp2013 edited by Piotr Lewandowski & Iga Magda, january.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:arx:papers:1611.05690. 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: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    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.