Tax Compliance and the Choice of an Optimum Strategy for the Economic Agents

Vladimir A. Molodykh, Andrey A.  Rubezhnoy

Abstract


The strategy analysis of taxpayer behavior while observing tax law requires weakening of traditional initial assumptions in order to take into account the subjective character of economic agents’ reaction to tax system changes. The aim of the given research is to identify the appropriate model of taxpayers’ behavior in conditions of the tax control procedures transformation. The research methodology is based on the synthesis of the neo-classical concept of individual’s rational choice, and on the assumptions of behavioral economics, which allowed considering the problem of tax evasion as the situation of social interaction among economic agents in decentralized system by taking into account their individual interests. The results of modeling demonstrated that tightening tax surveillance procedures undermines the coordination of interaction among autonomous tax groups. It leads to the growth of the possibility to select deviant behavior models. In this case the growth of tax management system efficiency expresses in budget income maximization, and is possible only by means of the extensive development of tax control procedures. The optimal strategy of the government behavior is using multimodal approach based on the partial replacement of control function for the cooperative strategy of tax subjects’ interaction to reduce the natural taxpayer opportunism rate. And as an exceptional measure the harsh sanctions aimed to resist the deviant models of behavior are used. In this case the optimal choice for a taxpayer will depend additionally on the changes of social norms and stereotypes of behavior that characterize the quality of the institutional environment changes

Highlights

1. Creation of the tax law observance models is necessary to recognize the existence of differentiated reaction to the actions of the state regarding the implementation of control functions. It demands weakening of the main assumptions of a rather rational behavior of economic agents

2. Prevalence of the rigid control function in the system of tax administration leads to the fact that this hierarchical system, which possesses the criterion function connected with maximizing the controllability of the system will never be able to increase the efficiency due to transition to a condition of decentralization

3. Change of tax control forms is possible based on introducing the procedures of “horizontal monitoring” of “a fair play of initiatives”. It increases loyalty and trust by introducing the strategy of cooperation between taxpayers and the bodies of control

For citation

Molodykh V. A., Rubezhnoy A. A. Tax Compliance and the Choice of an Optimum Strategy for the Economic Agents. Journal of Tax Reform, 2017, vol. 3, no. 3, pp. 216–225. DOI: http://dx.doi.org/10.15826/jtr.2017.3.3.041

Article info

Received October 30, 2017; accepted December 1, 2017


Keywords


behavioral economy, tax compliance, tax evasion, tax policy

References


Allingham M. G., Sandmo A. Income Tax Evasion: A Theoretical Analysis. Journal of Public Economics, 1972, vol. 1, no. 3–4, pp. 323–338. DOI: http://dx.doi.org/10.1016/0047-2727(72)90010-2.
2. Cronshaw M. B., Alm J. Tax Compliance with 2-sided Uncertainty. Public Finance Quarterly, 1995, vol. 23, no. 2, pp. 139–166.
3. Erard B. Taxation with Representation — an Analysis of the Role of Tax Practitioners in Tax Compliance. Journal of Public Economics, 1993, vol. 52, no. 2, pp. 163–197.
4. Yaniv G. Tax Compliance and Advance Tax Payments: A Prospect Theory Analysis. National Tax Journal, 1999, vol. 52, no. 4, pp. 753–764.
5. Murphy K. The Role of Trust in Nurturing Compliance: A Study of Accused Tax Avoiders. Law and Human Behavior, 2004, vol. 28, no. 2, pp. 187–209.
6. Doerrenberg P., Peichl A. Progressive Taxation and Tax Morale. Public Choice, 2013, vol. 155, no. 3–4, pp. 293–316.
7. Alm J., Torgler B. Do Ethics Matter? Tax Compliance and Morality. Journal of Business Ethics, 2011, vol. 101, no. 4, pp. 635–651.
8. Korobow A., Johnson C., Axtell R. An Agent-Based Model of Tax Compliance with Social Networks. National Tax Journal, 2007, vol. 60, no. 3, pp. 589–610.
9. Alm J., Cherry T., Jones M., McKee M. Taxpayer Information Assistance Services and Tax Compliance Behavior. Journal of Economic Psychology, 2010, vol. 31, no. 4, pp. 577–586.
10. Dejuan A., Lasheras N. A., Mayo R. Voluntary Lax Compliant Behavior of Spanish Income-Tax Payers. Public Finance = Finances publiques, 1994, vol. 49, pp. 90–105.
11. Davis J. S., Hecht G., Perkins J. D. Social Behaviors, Enforcement, and Tax Compliance Dynamics. Accounting Review, 2003, vol. 78, no. 1, pp. 39–69.
12. Frey B. S., Torgler B. Tax Morale and Conditional Cooperation. Journal of Comparative Economics, 2007, vol. 35, no. 1, pp. 136–159.
13. Torgler B. The Importance of Faith: Tax Morale and Religiosity. Journal of Economic Behavior & Organi Qation, 2006, vol. 61, no. 1, pp. 81–109.
14. Erard B., Feinstein J. S. The Role of Moral Sentiments and Audit Perceptions in Tax Compliance. Public Finance = Finances publiques, 1994, vol. 49, pp. 70–89.
15. Pommerehne W. W., Hart A., Frey B. S. Tax Morale, Tax Evasion and the Choice of Policy Instruments in Different Political-Systems. Public Finance = Finances publiques, 1994, vol. 49, pp. 52–69.
16. WenQel M. Misperceptions of Social Norms about Tax Compliance: From Theory to Intervention. Journal of Economic Psychology, 2005, vol. 26, no. 6, pp. 862–883.
17. Konrad K. A., Qari S. The Last Refuge of a Scoundrel? Patriotism and Tax Compliance. Economica, 2012, vol. 79, no. 315, pp. 516–533.
18. Kirchler E., Kogler C., Muehlbacher S. Cooperative Tax Compliance From Deterrence to Deference. Current Directions in Psychological Science, 2014, vol. 23, no. 2, pp. 87–92.
19. Auzan A. Institutsionalnaya ekonomika [Institutional Economy]. Moscow, INFRA-M Publ., 2005. 415 p.
20. Buchanan J. An Economic Theory of Clubs. Economica, 1965, vol. 125, pp. 208–221.
21. Sedov E. Information and Entropy Properties of Social Systems. ONS, 1993, no. 5, pp. 92–100.




Copyright (c) 2018 Vladimir A. Molodykh, Andrey A.  Rubezhnoy

eLibrary logoeLibrary logo  DOAJ logo ERIH PLUS logo 

 

© Journal of Tax Reform : ISSN 2414-9497 (online), ISSN 2412-8872 (print)