Income Tax Evasion in a Society of Heterogeneous Agents – Evidence from an Agent-based Model

Hokamp, Sascha; Pickhardt, Michael

doi:10.1080/10168737.2010.525994

Cited by 60 publications

(56 citation statements)

References 19 publications

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“…Since then, other authors have taken similar approaches. For example, a set of distinct types is exogenously assumed to exist, see for instance Hokamp and Pickhardt (2010), who also have agents making random errors in their reported income, and Antunes et al (2007) who consider different bounded rational agents. Davis et al (2003) analyze a model with honest and susceptible agents together with evaders and show that if an initially compliant population shifts to evasion, it is difficult to reverse the situation and the number of audits must be increased beyond the level that would have achieved acceptable compliance in the first place.…”

Section: Introductionmentioning

confidence: 99%

Citizenship and power in an agent-based model of tax compliance with public expenditure

Pellizzari

Rizzi

2014

Journal of Economic Psychology

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In this paper we present a model of tax compliance with heterogeneous agents who maximize their individual utility based on income and the conjectured level of per capita public expenditure. We formally include psychological drivers in this model. These drivers affect individual behavior, such as risk aversion, together with appreciation of public expenditure, expectations about peers' compliance and a natural inclination to comply, all of which we summarize in a quality termed "citizenship". The enforcement system, based on random inspections, is standard and only partially known to agents. The agent-based model is simulated under a variety of settings, representing different "societies". We use the artificial data produced by the model to estimate the effects of taxpayers' traits on personal tax behavior and to build a compliance societal slippery slope. At the individual level, we find a positive dependence of compliance on all variables, with the significant exception of the tax rate, which has a negative impact. As far as societies are concerned, we show how aggregate tax compliance depends on composite indices of citizenship and power, and we find that the former is more important than the latter.

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Section: Introductionmentioning

confidence: 99%

Citizenship and power in an agent-based model of tax compliance with public expenditure

Pellizzari

Rizzi

2014

Journal of Economic Psychology

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“…Cyclical behavior in compliance is seen here when the audit probability is adjusted, but no guidance is provided on how to increase compliance. In addition, attempts have been made to investigate how psychological motives vary with different audit techniques (Davis et al 2003;Hokamp and Pickhardt 2010;Hokamp and Seibold 2014;Pickhardt and Prinz 2014). Econophysics models from statistical mechanics have also been considered, e.g.…”

Section: Tax Evasion Modelingmentioning

confidence: 99%

Detecting tax evasion: a co-evolutionary approach

et al. 2016

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We present an algorithm that can anticipate tax evasion by modeling the co-evolution of tax schemes with auditing policies. Malicious tax non-compliance, or evasion, accounts for billions of lost revenue each year. Unfortunately when tax administrators change the tax laws or auditing procedures to eliminate known fraudulent schemes another potentially more profitable scheme takes it place. Modeling both the tax schemes and auditing policies within a single framework can therefore provide major advantages. In particular we can explore the likely forms of tax schemes in response to changes in audit policies. This can serve as an early warning system to help focus enforcement efforts. In addition, the audit policies can be fine tuned to help improve tax scheme detection. We demonstrate our approach using the iBOB tax scheme and show it can capture the co-evolution between tax evasion and audit policy. Our experiments shows the expected oscillatory behavior of a biological co-evolving system.

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“…Recent years have seen the introduction of computational methods like agent based modeling to the problem domain; these methods go beyond standard microeconomic models by treating individual taxpayers as discrete interacting entities embedded in complex social networks (Bloomquist 2006). Some notable examples of this kind of work include studies of changes in taxpayer reporting behavior under different audit scenarios (Hokamp and Pickhardt 2010), investigations of the impact of taxpayer network structures on tax compliance (Andrei et al 2013) and the identification of critical audit rates at which whole populations suddenly shift their equilibrium level of compliance (Davis et al 2003). In the present study, we propose an alternative formulation of the problem that treats tax evasion schemes, rather than individual taxpayers, as the fundamental objects of interest.…”

Section: Background and Introductionmentioning

confidence: 99%

Modeling tax evasion with genetic algorithms

et al. 2014

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The U.S. tax gap is estimated to exceed $450 billion, most of which arises from non-compliance on the part of individual taxpayers (GAO 2012; IRS 2006). Much is hidden in innovative tax shelters combining multiple business structures such as partnerships, trusts, and S-corporations into complex transaction networks designed to reduce and obscure the true tax liabilities of their individual shareholders. One known gambit employed by these shelters is to offset real gains in one part of a portfolio by creating artificial capital losses elsewhere through the mechanism of "inflated basis" (TaxAnalysts 2005), a process made easier by the relatively flexible set of rules surrounding "pass-through" entities such as partnerships (IRS 2009). The ability to anticipate the likely forms of emerging evasion schemes would help auditors develop more efficient methods of reducing the tax gap. To this end, we have developed a prototype evolutionary algorithm designed to generate potential schemes of the inflated basis type described above. The algorithm takes as inputs a collection of asset types and tax entities, together with a rule-set governing asset exchanges between these entities. The schemes produced by the algorithm consist of sequences of transactions within an ownership network of tax entities. Schemes are ranked according to a "fitness function" (Goldberg in Genetic algorithms in search, optimization, and machine learning. Addison-Wesley, Boston, 1989); the very best schemes are those

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Income Tax Evasion in a Society of Heterogeneous Agents – Evidence from an Agent-based Model

Cited by 60 publications

References 19 publications

Citizenship and power in an agent-based model of tax compliance with public expenditure

Citizenship and power in an agent-based model of tax compliance with public expenditure

Detecting tax evasion: a co-evolutionary approach

Modeling tax evasion with genetic algorithms

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