Tax evasion and social reputation: The role of influencers in a social network

Abstract

In this paper, we present an agent-based model in which taxpayers 'live' in a network and care about their social reputation. Individuals decide whether to pay or to evade taxes considering the expected economic net benefit and the reputational cost from tax evasion. Individuals differ in income and in the weight they attach to social reputation, which is updated by assessing the opinions shared in their reference group. The reference group contains individuals irrespective of their income (integrated society) or it is made up of peers belonging to the same income group (segregated society). We simulate the model in the two alternative settings to find the frequency distribution of taxpayers in a dataset of random networks. The results indicate that, in an integrated society, network conformity is reached and all individuals either evade or pay their taxes. Conversely, a segregated society might generate obstacles to the diffusion of opinions and, as a result, tax evasion and tax compliance might coexist. Lastly, we consider the effects of a social media campaign starring a celebrity financed by a fiscal authority to increase overall tax compliance by exploiting the diffusion dynamics in the network. We show that such a policy is more effective if the diffusion of opinions is not hindered by social segregation.

Taxpayer Perception and Income Tax Filing Compliance among Small Taxpayers in Mbarara City

“…The Social Influence Theory (SIT) is applicable in explaining the relationship between taxpayer perception and tax compliance. Research by Di Gioacchino & Fichera (2022) presented an agent-based model in which taxpayers live in a network and care about their social reputation, where individuals decide whether to pay or to evade taxes considering the expected economic net benefit and the reputational cost from tax evasion. The study found that in a society where people from different income levels mix (integrated society), everyone tends to follow the same behavior, either all paying taxes or all evading them.…”

Proposal of a guide for the interpretation, simplification of the regulatory process and good tax compliance, case of digital taxpayers, influencers

“…The income in this special segment of taxpayers (influencers) are mostly those that are not declared to the tax system and generate non-compliance with tax obligations. [9] mention that many of the influencers prioritize tax compliance and their tax obligations, making their followers follow the same behavior, because the social norm mentions that their individual tax behavior will depend on the expected net monetary benefit, tha's if tax evasion is going to harm their social reputation, then the influencer will take it very seriously to regularize their income to the tax system. On the other hand according to [10] the cause could be the lack of adequate instructive reports on tax issues towards the taxpayer.…”