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A behavioral model of evolutionary dynamics and optimal regulation of tax evasion

Domenico De Giovanni, Fabio Lamantia and Mario Pezzino

Structural Change and Economic Dynamics, 2019, vol. 50, issue C, 79-89

Abstract: The paper studies the dynamics of compliance in a population of agents that decide whether to engage in tax evasion depending on an evolutionary adaptation process, when payoffs are assumed to have the realistic features of Prospect Theory utilities. The paper also considers the optimal control problem of a tax authority that targets the maximization of the expected stream of tax revenues choosing auditing effort. The analysis produces novel and rich results, including conditions for the convergence to an asymptotically stable interior equilibrium, the existence of multiple equilibria and discontinuities in the optimal control.

Keywords: Tax evasion; Prospect theory; Optimal control; Auditing; Evolutionary dynamics (search for similar items in EconPapers)
JEL-codes: D8 C61 C73 H26 (search for similar items in EconPapers)
Date: 2019
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