Evolutionary Tax Evasion and Optimal Regulation

Domenico De Giovanni, Fabio Lamantia and Mario Pezzino ()

Economics Discussion Paper Series from Economics, The University of Manchester

Abstract: We study the dynamics of compliance in a population of agents that decide whether to engage in tax evasion depending on an evolutionary adaptation process. We model taxpayers’ preferences by means of Prospect Theory. We also consider an optimal control problem to study the longrun level of tax evasion when a tax authority targets the maximization of the expected stream of tax revenues choosing auditing effort. The analysis provides conditions for the evolution of tax evasion to converge to an asymptotically stable interior equilibrium. Moreover, the study of the intertemporal optimal auditing produces novel and rich results, including the existence of multiple equilibria and discontinuities in the optimal control.

JEL-codes: C61 C73 D8 H26 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-evo, nep-iue and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:man:sespap:1814

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