Analysing tax evasion dynamics via the Ising model

Details Analysing tax evasion dynamics via the Ising model Analysing tax evasion dynamics via the Ising model

2008-01-18

arxiv.org/abs/0801.2980v1

Economy

Quantitative Finance

General Finance

15 pages including figures and the Fortran program

Scientific paper

We develop a model of tax evasion based on the Ising model. We augment the model using an appropriate enforcement mechanism that may allow policy makers to curb tax evasion. With a certain probability tax evaders are subject to an audit. If they get caught they behave honestly for a certain number of periods. Simulating the model for a range of parameter combinations, we show that tax evasion may be controlled effectively by using punishment as an enforcement mechanism.

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