Tax Compliance as an Evolutionary Coordination Game: An Agent-Based Approach

Kim Bloomquist
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Kim Bloomquist: Internal Revenue Services Office of Research in Washington, D.C, Kim.Bloomquist@irs.gov

Public Finance Review, 2011, vol. 39, issue 1, 25-49

Abstract: Tax reporting compliance by small business owners is modeled in an agent-based framework using concepts and methods based on evolutionary dynamics. A business owner’s ‘‘fitness’’ is a function of net after tax (and post-audit) income. Business owners exhibit heterogeneous tax morale and compliance propensity following four stochastically assigned behavioral ‘‘archetypes’’: Honest, Strategic, Defiant, and Random. The model is calibrated to observations from laboratory experiments and taxpayer random audits. The calibrated model is used to simulate evolutionary changes in a static population of 10,000 small business owners. A simulation using realistic parameters for the probability of audit and penalty rate finds that after fifteen time periods, the initial number of Honest business owners declines by approximately one-third and are displaced by proprietors having either Defiant or Strategic compliance behaviors.

Keywords: tax compliance; agent-based modeling; evolutionary game theory; laboratory experiments; random taxpayer audits (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:39:y:2011:i:1:p:25-49

DOI: 10.1177/1091142110381640

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