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Tax Enforcement in an Agent-Based Model with Endogenous Audits

In: Artificial Economics and Self Organization

Author

Listed:
  • Susanna Calimani

    (University of Turin)

  • Paolo Pellizzari

    (Ca’Foscari University of Venice)

Abstract

We generalize the classic Allingham and Sandmo’s model of tax evasion considering heterogeneous agents with different degrees of tax morale and matchable, as opposed to non-matchable, income. The Tax Agency evolves its control scheme, maximizing the revenues from fines, and takes into account some minimal information on the taxpayers. We compare different audit policies and find that the most effective scheme remarkably depends on the way agents update the subjective probability of being audited, on the distribution of matchable income in the population as well as on the level of tax morale. Hence, different features of societies and taxpayers’ behaviors not only affect the compliance rate, as expected, but require the Tax Agency to alter its audit policy in a context-dependent way. In particular, high revenues are obtained performing random audits when agents think they are directed towards peculiar individuals and, conversely, should be biased towards low declarations when taxpayers believe audits are nonspecific or random.

Suggested Citation

  • Susanna Calimani & Paolo Pellizzari, 2014. "Tax Enforcement in an Agent-Based Model with Endogenous Audits," Lecture Notes in Economics and Mathematical Systems, in: Stephan Leitner & Friederike Wall (ed.), Artificial Economics and Self Organization, edition 127, pages 41-53, Springer.
    • Handle: RePEc:spr:lnechp:978-3-319-00912-4_4
    DOI: 10.1007/978-3-319-00912-4_4
    as

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