A decomposition algorithm for computing income taxes with pass-through entities and its application to the Chilean case

Javiera Barrera, Eduardo Moreno and Sebastian Varas

Papers from arXiv.org

Abstract: Income tax systems with pass-through entities transfer a firm's incomes to the shareholders, which are taxed individually. In 2014, a Chilean tax reform introduced this type of entity and changed to an accrual basis that distributes incomes (but not losses) to shareholders. A crucial step for the Chilean taxation authority is to compute the final income of each individual, given the complex network of corporations and companies, usually including cycles between them. In this paper, we show the mathematical conceptualization and the solution to the problem, proving that there is only one way to distribute incomes to taxpayers. Using the theory of absorbing Markov chains, we define a mathematical model for computing the taxable incomes of each taxpayer, and we propose a decomposition algorithm for this problem. This allows us to compute the solution accurately and with the efficient use of computational resources. Finally, we present some characteristics of the Chilean taxpayers' network and computational results of the algorithm using this network.

Date: 2016-09
New Economics Papers: this item is included in nep-acc and nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Ann Oper Res 286, 545-557 (2020)

Downloads: (external link)
http://arxiv.org/pdf/1611.05690 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1611.05690

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().