A three-state kinetic agent-based model to analyze tax evasion dynamics

TL;DR

This paper introduces a three-state agent-based model to analyze tax evasion dynamics, incorporating opinion exchange, punishment, and undecided agents, revealing how enforcement and opinion factors influence compliance levels.

Contribution

It presents a novel three-state kinetic model combining opinion dynamics with enforcement rules to study tax evasion behavior.

Findings

High compliance when opinion disagreement is low (q<1/4)

Enforcement significantly reduces evasion when opinion disagreement is high (q>1/4)

Undecided agents impact the evolution of tax compliance

Abstract

In this work we study the problem of tax evasion on a fully-connected population. For this purpose, we consider that the agents may be in three different states, namely honest tax payers, tax evaders and undecided, that are individuals in an intermediate class among honests and evaders. Every individual can change his/her state following a kinetic exchange opinion dynamics, where the agents interact by pairs with competitive negative (with probability $q$) and positive (with probability $1-q$) couplings, representing agreement/disagreement between pairs of agents. In addition, we consider the punishment rules of the Zaklan econophysics model, for which there is a probability $p_{a}$ of an audit each agent is subject to in every period and a length of time $k$ detected tax evaders remain honest. Our results suggest that below the critical point $q_{c}=1/4$ of the opinion dynamics the compliance is high, and the punishment rules have a small effect in the population. On the other hand, for $q>q_{c}$ the tax evasion can be considerably reduced by the enforcement mechanism. We also discuss the impact of the presence of the undecided agents in the evolution of the system.