An Agent–Based Model of Tax Compliance with Social Networks

Adam K. Korobow · Robert L. Axtell

81 citations0/0 files storedNational Tax Journal

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Taxation and Compliance Studies Economic and Fiscal Studies Multi-Agent Systems and Negotiation

Abstract

In this paper, we use a computational modeling approach to examine the long-standing social issue of tax compliance. Specifically, we design an agent-based model—the Networked Agent-Based Compliance Model (NACSM)—where taxpayers not only exist within localized social networks, but also possess heterogeneous characteristics such as perceptions about the likelihood of audit and apprehension. When making compliance decisions, agents in our model factor in their neighbors' compliance strategy payoffs. We find that for a given enforcement regime, a world with limited knowledge of neighbor payoffs appears to lead to higher levels of aggregate compliance than when agents are aware of neighbor strategy payoffs and factor these into their individual compliance decisions. As this paper demonstrates the strength and initial results of our approach, we point to the need for further research using the NACSM approach and similar models as well as the development of higher fidelity agent-based compliance models.

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References

1968Crime and Punishment: An Economic Approach 1972Income tax evasion: a theoretical analysis 2002Agent-based modeling: Methods and techniques for simulating human systems 1996Crime and Social Interactions 1992Why do people pay taxes?2007Tax compliance as the result of a psychological tax contract: the role of incentives and responsive regulation 1994Honesty and Evasion in the Tax Compliance Game 1996A model of tax evasion with group conformity and social customs

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2010Tax Compliance as an Evolutionary Coordination Game: An Agent-Based Approach 2010Income Tax Evasion in a Society of Heterogeneous Agents – Evidence from an Agent-based Model 2012Social networks and occupational choice: The endogenous formation of attitudes and beliefs about tax compliance 2013An agent-based model of network effects on tax compliance and evasion

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