Simulating Tax Evasion with Utilitarian Agents and Social Feedback

Abstract

This article discusses the TAXSIM model for the simulation of tax evading behavior in a computational model of a single market sector. The rate of tax evasion is an agreement between an employer and an employee that is made to reduce costs. The agents’ expectations and satisfaction are results of the agents’ individual learning, based on their own experiences and on those in their social network. This way the emerging social approach to tax evasion feeds back to individual behavior. The series of experiments reported in this chapter analyze scenarios in which 1) the quality of governmental services increases permanently, 2) a market leader unilaterally adopts the legal position, and 3) multi-national companies with tax allowances enter the market. In addition, we show that in this model, the level and efficiency of tax audits alone cannot control and explain the emerging tax compliance level.