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Tax Enforcement in an Agent-Based Model with Endogenous Audits

  • Susanna CalimaniEmail author
  • Paolo Pellizzari
Chapter
  • 1.5k Downloads
Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 669)

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.

Keywords

Risk Aversion Audit Probability Audit Scheme Compliance Decision Expected Utility Framework 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Notes

Acknowledgements

We thank Matteo Richiardi and Dino Rizzi for useful discussions and suggestions. The financial support of PRIN 20103S5RN3 “Robust decision making in markets and organization” is acknowledged.

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Copyright information

© Springer International Publishing Switzerland 2014

Authors and Affiliations

  1. 1.Department of Economics and Statistics “Cognetti de Martiis”University of TurinTurinItaly
  2. 2.Department of EconomicsCa’Foscari University of VeniceVeniceItaly

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