TAX COMPLIANCE AND THE CHOICE OF AN OPTIMUM STRATEGY FOR THE ECONOMIC AGENTS

Vladimir A Molodykh,Andrey A Rubezhnoy

doi:10.15826/jtr.2017.3.3.041

Abstract

The strategy analysis of taxpayer behavior while observing tax law requires weakening of traditional initial assumptions in order to take into account the subjective character of economic agents’ reaction to tax system changes. The aim of the given research is to identify the appropriate model of taxpayers’ behavior in conditions of the tax control procedures transformation. The research methodology is based on the synthesis of the neo-classical concept of individual’s rational choice, and on the assumptions of behavioral economics, which allowed considering the problem of tax evasion as the situation of social interaction among economic agents in decentralized system by taking into account their individual interests. The results of modeling demonstrated that tightening tax surveillance procedures undermines the coordination of interaction among autonomous tax groups. It leads to the growth of the possibility to select deviant behavior models. In this case the growth of tax management system efficiency expresses in budget income maximization, and is possible only by means of the extensive development of tax control procedures. The optimal strategy of the government behavior is using multimodal approach based on the partial replacement of control function for the cooperative strategy of tax subjects’ interaction to reduce the natural taxpayer opportunism rate. And as an exceptional measure the harsh sanctions aimed to resist the deviant models of behavior are used. In this case the optimal choice for a taxpayer will depend additionally on the changes of social norms and stereotypes of behavior that characterize the quality of the institutional environment changes Highlights 1. Creation of the tax law observance models is necessary to recognize the existence of differentiated reaction to the actions of the state regarding the implementation of control functions. It demands weakening of the main assumptions of a rather rational behavior of economic agents 2. Prevalence of the rigid control function in the system of tax administration leads to the fact that this hierarchical system, which possesses the criterion function connected with maximizing the controllability of the system will never be able to increase the efficiency due to transition to a condition of decentralization 3. Change of tax control forms is possible based on introducing the procedures of “horizontal monitoring” of “a fair play of initiatives”. It increases loyalty and trust by introducing the strategy of cooperation between taxpayers and the bodies of control For citation Molodykh V. A., Rubezhnoy A. A. Tax Compliance and the Choice of an Optimum Strategy for the Economic Agents. Journal of Tax Reform , 2017, vol. 3, no. 3, pp. 216–225. DOI: http://dx.doi.org/10.15826/jtr.2017.3.3.041 Article info Received October 30, 2017 ; accepted December 1, 2017

Highlights

The interest in studying the problem of tax evasion is connected with emergence of the first systematic theoretical analysis carried out by Allingham and Sandmo [1]
The main questions which were studied in detail further concern the problems of tax evasion extent measurement, explanation of taxpayers’ behavior, identification of the factors influencing the choice of economic agents as it is possible to use the received conclusions and results in practice
The problem described above concerns only the creation of the pressure mechanism to increase the efficiency of tax control procedures, it exists in the analysis of negative impact of illegal taxpayers’ behavior in open systems taking into account tax morals

Summary

Introduction

The interest in studying the problem of tax evasion is connected with emergence of the first systematic theoretical analysis carried out by Allingham and Sandmo [1]. In case the taxpayer chose the strategy of “no-pressure” and at the same time the volume of under gathered taxes in the budgetary system reached critical level, the individual receives the same gain of benefit from efficiency change, at the same time it did not incur any costs.

Results

Conclusion