Persistence and Pervasiveness of Tax Evasion: An Evolutionary Analytical Framework

Jaylson Silveira (), Gilberto Lima and Leonardo Barros Torres ()

No 2025_01, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: There is considerable empirical evidence that heterogeneity in tax compliance behavior is persistent and pervasive. This paper develops an evolutionary analytical framework in which taxpayers periodically choose between to comply or not to comply with their tax obligations. Aggregate demand formation arising from private and public expenditures depends on the frequency distribution of tax compliance behavior across taxpayers, so that the macrodynamic of the rates of capacity utilization and output growth is coevolutionarily coupled to the microdynamic of tax compliance across individuals. The analytical framework set forth here replicates several pieces of evidence on tax evasion. First, the proportion of non-complying taxpayers (and hence the volume of tax evasion) depends on the tax rate and the expected cost of tax evasion. Second, heterogeneity in tax compliance behavior is evolutionarily persistent instead of temporary. Third, the immediate impact of a change in the proportion of tax evading individuals on the rates of capacity utilization and output growth is non-linear. Fourth, the proportion of non-complying taxpayers and the rates of capacity utilization and output growth vary positively with the tax rate in the evolutionary equilibrium.

Keywords: Tax evasion; evolutionary dynamics; heterogeneous behavior; capacity utilization; economic growth (search for similar items in EconPapers)
JEL-codes: B52 C73 E12 E70 H26 (search for similar items in EconPapers)
Date: 2025-01-07
New Economics Papers: this item is included in nep-evo, nep-hme, nep-iue, nep-pbe and nep-pub
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