Endogenous Tax Compliance and Macroeconomic Performance Driven by Satisficing Evolutionary Dynamics

Leonardo Barros Torres (l.barrostorres@surrey.ac.uk), Gilberto Lima and Jaylson Silveira (jaylson.silveira@ufsc.br)

No 2024_10, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: We incorporate tax evasion to a demand-led macrodynamic model of capacity utilization and output growth rate. The frequency of tax evaders is endogenously time-varying, driven by imitation-augmented satisficing evolutionary dynamics involving pecuniary and non-pecuniary factors reflecting the distribution of tax morale across taxpayers. Consequently, the microdiversity of tax compliance behavior and the macrodynamics of economic activity are co-evolutionarily coupled. Matching empirical evidence, long-run heterogeneity in tax compliance is a stable evolutionary equilibrium, and the higher the median tax morale, the lower the frequency of tax evaders. Other comparative statics matching empirical evidence are obtained analytically and through numerical simulations.

Keywords: Tax compliance behavior; tax morale; satisficing evolutionary dynamics; capacity utilization; output growth rate (search for similar items in EconPapers)
JEL-codes: B52 C52 D33 E12 E70 H26 (search for similar items in EconPapers)
Date: 2024-03-11
New Economics Papers: this item is included in nep-hme, nep-iue, nep-pbe and nep-pub
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