Controlling tax evasion fluctuations

TL;DR

This paper models tax evasion dynamics using an augmented Ising model, demonstrating that minimal enforcement can significantly reduce fluctuations in evasion across various network structures.

Contribution

It introduces a novel application of the Ising model to tax evasion, incorporating enforcement mechanisms to analyze their impact on evasion fluctuations.

Findings

Minimal enforcement levels can substantially reduce tax evasion fluctuations.

Network structure significantly influences evasion variability.

Enforcement mechanisms are effective in stabilizing tax compliance.

Abstract

We incorporate the behaviour of tax evasion into the standard two-dimensional Ising model and augment it by providing policy-makers with the opportunity to curb tax evasion via an appropriate enforcement mechanism. We discuss different network structures in which tax evasion may vary greatly over time if no measures of control are taken. Furthermore, we show that even minimal enforcement levels may help to alleviate this problem substantially.