Microscopic models for the study of taxpayer audit effects

Authored by Maria Letizia Bertotti, Giovanni Modanese

Date Published: 2016

DOI: 10.1142/s012918311650100x

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

A microscopic dynamic model is here constructed and analyzed, describing the evolution of the income distribution in the presence of taxation and redistribution in a society in which also tax evasion and auditing processes occur. The focus is on effects of enforcement regimes, characterized by different choices of the audited taxpayer fraction and of the penalties imposed to noncompliant individuals. A complex systems perspective is adopted: society is considered as a system composed by a large number of heterogeneous individuals. These are divided into income classes and may as well have different tax evasion behaviors. The variation in time of the number of individuals in each class is described by a system of nonlinear differential equations of the kinetic discretized Boltzmann type involving transition probabilities. A priori, one could think that audits and fines should have a positive erect on the reduction of economic inequality and correspondingly of the Gini index G. According to our model, however, such effects is rather small. In contrast, the effect on the increase of the tax revenue may be significant.

Tags

Agent-based model Tax evasion dynamics Redistribution Taxation