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Evolution of Tax Evasion


  • Lipatov, Vilen


In this paper we analyze a tax evasion game with taxpayer learning by imitation. If the authority commits to a fixed auditing probability, a positive share of cheating is obtained in equilibrium. This stands in contrast to the existing literature that yields full compliance of audited taxpayer who are rational, have a lot of information and thus do not need to interact. When the authority adjusts auditing probability every period, cycling in cheating-auditing occurs. Thus, the real life phenomenon of compliance fluctuations is explained within the model rather than by exogenous parameter shifts.

Suggested Citation

  • Lipatov, Vilen, 2003. "Evolution of Tax Evasion," MPRA Paper 966, University Library of Munich, Germany, revised 06 Dec 2005.
  • Handle: RePEc:pra:mprapa:966

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    References listed on IDEAS

    1. Sanchez, Isabel & Sobel, Joel, 1993. "Hierarchical design and enforcement of income tax policies," Journal of Public Economics, Elsevier, vol. 50(3), pages 345-369, March.
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    7. Graetz, Michael J & Reinganum, Jennifer F & Wilde, Louis L, 1986. "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(1), pages 1-32, Spring.
    8. Wane, Waly, 2000. "Tax evasion, corruption, and the remuneration of heterogeneous inspectors," Policy Research Working Paper Series 2394, The World Bank.
    9. Josef Hofbauer & Karl H. Schlag, 2000. "Sophisticated imitation in cyclic games," Journal of Evolutionary Economics, Springer, vol. 10(5), pages 523-543.
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    Cited by:

    1. Lipatov, Vilen, 2006. "Tax Evasion and Coordination," MPRA Paper 1251, University Library of Munich, Germany, revised Dec 2006.
    2. Sokolovskyi, Dmytro & Sokolovska, Olena, 2016. "Tax burden optimization on economic agents by modeling interaction in the taxation system," MPRA Paper 71110, University Library of Munich, Germany, revised 05 May 2016.
    3. Anastasios Xepapadeas & Yannis Petrohilos-Andrianos, "undated". "On the Evolution of Compliance and Regulation with Tax Evading Agents," DEOS Working Papers 1325, Athens University of Economics and Business.
    4. Constadina Passa & Anastasios Xepapadeas, 2008. "Regulation of Farming Activities: An Evolutionary Approach," Working Papers 0811, University of Crete, Department of Economics.

    More about this item


    tax evasion; imitation; learning;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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