A multi-agent-based approach to tax morale

TL;DR

This paper models tax evasion behavior using an adapted Ising model, showing how trust in government and enforcement influence tax morale and evasion levels across different network structures.

Contribution

It introduces a novel multi-agent approach embedding trust and enforcement into the Ising model to simulate tax morale phenomena.

Findings

Tax morale can be modeled with an external magnetic field representing trust.

Enforcement mechanisms effectively reduce tax evasion.

Results are consistent across different network topologies.

Abstract

We embed the behaviour of tax evasion into the standard two-dimensional Ising model. In the presence of an external magnetic field, the Ising model is able to generate the empirically observed effect of tax morale, i.e. the phenomenon that in some countries tax evasion is either rather high or low. The external magnetic field captures the agents' trust in governmental institutions. We also find that tax authorities may curb tax evasion via appropriate enforcement mechanisms. Our results are robust for the Barab\'asi-Albert and Voronoi-Delaunay networks.