Agent-based Modeling of Tax Evasion

Chapter 5SIMULFIS: A Simulation Tool to Explore Tax Compliance Behavior

Toni Llacer, Francisco J. Miguel Quesada, José A. Noguera and Eduardo Tapia Tejada

5.1 Introduction

Tax evasion, usually defined as the voluntary reduction of the tax burden by illegal means (Elffers et al., 1987), is a problem of huge social relevance at present times. This is so, first, because tax evasion reduces the volume of resources available for the public sector. This reduction is especially damaging in the Spanish case: Arrazola et al. (2011) estimates that Spanish shadow economy represents approximately 17% of GNP, while (GESTHA, 2011) estimates a higher level of 23.3%. Second, since tax evasion behavior is not equally distributed among taxpayers, it violates the principles of fairness, equality, and progressivity that the tax system ought to satisfy (Alvarez and Herrera, 2004). Academic researchers who aim to explain tax evasion and tax compliance are increasingly acknowledging the need to include psychological, social, and cultural factors in their explanatory models; traditional explanations were too often linked to the strict assumptions of rational choice theory and the Homo Oeconomicus model (Allingham and Sandmo, 1972) (see Chapter 1 for a detailed discussion). Instead, new studies focus, for example, on taxpayers' tax morale (their tolerance toward tax fraud (Torgler, 2007)). Recently, it has been shown that there is a causal link between aggregated tax morale and the volume of the shadow ...