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Game Theory Applied to Business Decision Making under Fiscalization in Croatia: Analysis, Equilibrium, and Policy Recommendations

Katarina Justic Jozicic, Katarina Kostelić and Marinko Skare
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Katarina Justic Jozicic: Juraj Dobrila University of Pula, Croatia

Managing Global Transitions, 2018, vol. 16, issue 1 (Spring), 37-58

Abstract: The Croatian Fiscalization Law implemented in Croatia in 2013 created dynamic interaction and significant consequences for business and the Government. We examine the influence of the Fiscalization Law on decision making of businesses and its consequences. The paper provides an overview and analysis of the implementation process, business decisions, interactions between business and Tax Administration, as well as the consequences. Financial benefits of tax evasion form a clear motivation for businesses, but noncompliance could lead to losses due to penalties. Given the decision-making under risk, the interaction between a business and Tax Administration should be formed as a game model enriched with empirical data. Given the empirical data, while businesses show tendency to deviate, Government generates gain. Hence, it is necessary to examine the equilibrium: how much deviation will the Government tolerate before raising penalties, and which amount of risk will business be willing to take in order to evade taxes.

Keywords: game theory; decision-making under risk; fiscalization (search for similar items in EconPapers)
JEL-codes: C72 D81 H26 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.26493/1854-6935.16.37-58

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