On the evolution of compliance and regulation with tax evading agents

Yannis  Petrohilos-Andrianos; Anastasios  Xepapadeas

doi:10.3934/jdg.2016013

Article Contents

2016, Volume 3, Issue 3: 231-260. Doi: 10.3934/jdg.2016013

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On the evolution of compliance and regulation with tax evading agents

Yannis Petrohilos-Andrianos^1, and
Anastasios Xepapadeas^1,

1.
Athens University of Economics and Business, Department of International and European Economic Studies, 76 Patission Street, GR 10434 Athens

Received: December 2015

Revised: March 2016

Published: July 2016

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Abstract

We study the evolution of compliance and regulation with tax-evading agents, allowing for imitation rather than rationality in the evolution of available strategies distribution in the population. The general framework of the approach combines a classical model for tax evasion where agents are imitators rather than rational optimizers and form an endogenized subjective probability of audit. A regulator chooses values to available policy instruments, either myopically or optimally -within an optimal control setup-, always with respect to the behavior of agents. A comparison is drawn between the evolutionary and rational case in order to evaluate the differences that occur.

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Mathematics Subject Classification: Primary: 91A22, 91B55; JEL Classification: H26, C73.

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