Abstract
In this paper, we consider the problem of tax evasion, which occurs whenever an individual or business ignores tax laws. Fighting tax evasion is the main task of the Economic and Financial Military Police, which annually performs fiscal controls to track down and prosecute evaders at national level. Due to limited financial resources, the tax inspector is unable to audit the population entirely. In this article, we propose a model to assist the Italian tax inspector (Guardia di Finanza, G.d.F.) in allocating its budget among different business clusters, via a controller-controlled Stackelberg game. The G.d.F. is seen as the leader, while potential evaders are segmented into classes according to their business sizes, as set by the Italian regulatory framework. Numerical results on the real Italian case for fiscal year 2015 are provided. Insights on the optimal number of controls the inspector will have to perform among different business clusters are discussed and compared to the strategy implemented by the G.d.F.
Highlights
In Italy, the problem of tax evasion is a well known and uncontrolled phenomenon, with estimates on total evaded amount settling around 11% of the national Gross Domestic Product (GDP) (Ministero dell’Economia 2020)
We propose a model to assist the Italian tax inspector (Guardia di Finanza, G.d.F.) in allocating its budget among different business clusters, via a controller-controlled Stackelberg game
The role played by the Economic & Financial Military Police (Guardia di Finanza, G.d.F. on) is of significant relevance, enabling every year to recover a large amount of undeclared taxes via fiscal audits
Summary
In Italy, the problem of tax evasion is a well known and uncontrolled phenomenon, with estimates on total evaded amount settling around 11% of the national Gross Domestic Product (GDP) (Ministero dell’Economia 2020). The government tries to tackle evasion via different strategies, emphasizing for instance the development of supportive taxpaying values among citizens, via informational strategies, or through coercive policies (Keith 1990). In this last regard, the role played by the Economic & Financial Military Police (Guardia di Finanza, G.d.F. on) is of significant relevance, enabling every year to recover a large amount of undeclared taxes via fiscal audits. (i.e., leader) will first commit to a budget allocation and, to perform a given number of fiscal controls per taxpayers class.
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