Complexity of Out-of-Equilibrium Play in Tax Evasion Game

  • V. Lipatov
Part of the New Economic Windows book series (NEW)


In this paper, interaction among taxpayers in the tax evasion game is considered by means of game theory with learning. This interaction has been largely neglected in the modeling of tax evasion so far, although it brings about results significantly different from those of a conventional model. In case of tax authority commitment to a certain auditing probability, nonzero cheating equilibrium becomes possible. In case of tax authority with no commitment to a certain auditing probability, cycling may occur instead of long-run equilibrium, allowing for explanation of the fluctuations in “honesty” of taxpayers within the model rather than by exogenous parameter shifts.


Nash Equilibrium Shadow Economy Audit Probability Fictitious Play Discrete Time Dynamic 
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Copyright information

© Springer-Verlag Italia 2007

Authors and Affiliations

  • V. Lipatov
    • 1
  1. 1.Economics DepartmentEuropean University InstituteItaly

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