An Agent-Based Tax Evasion Model Calibrated Using Survey Data Attila Szabó 1,2, László Gulyás...

An Agent-Based Tax Evasion Model Calibrated Using Survey Data

Attila Szabó1,2, László Gulyás1,2, István János Tóth3

1AITIA International Inc,2Loránd Eötvös University, Budapest

3Institute of Economics , Hungarian Academy of Sciences

Shadow 2011, Münster, Germany

1Shadow 2011, Münster, Germany

Work in Progress

Shadow 2011, Münster, Germany 2

Acknowledgements

The partial support of the following grants of the Hungarian Government are gratefully acknowledged.

KMOP-1.1.2-08/1-2008-0002

OTKA T62455

OTKA K48891


OutlineOutline

1. The TAXSIM Model

2. Earlier Results

3. Survey-Driven Calibration (work in progress)

4. Results

5. Conclusions and Future Work

3


The TAXSIM ModelThe TAXSIM Model (since 2007)(since 2007)

-“All models are wrong; some models are useful.”Box

4


Previous modelsPrevious models

5

• The focus is on the taxpayers' strategy:

Publications: Balsa et. al., Bloomquist, Davis et. al., Korobow et. al., Mittone and Patelli

• TAXSIM makes a utilitarian approach: misreporting is a cost optimization strategy


Actors of TAXSIMActors of TAXSIM

Employee (taxpayer)

Try to find a job according to its preference

Employer (taxpayer)

Try to find employees according to its preference

Tax authority

Audits actors using a certain probabilistic strategy

Government ('society feedback')

Provides a level of contentment (services & satisfaction)

Market sector (a single sector economy)

Buys cheapest products first

6


Model ArchitectureModel Architecture

7

TAXSIM Decision Making

Audits,Governmental

services

Model of the market

Information from social networks

Taxpayer strategy Decision



Refinement of the EnvironmentRefinement of the Environment

The taxpayers make a decision on …

...what they actually can!

Taxpayer strategy respects the viable options (the environment may override the strategy)

Employers and employees

different strategies for different goals

different motivation factors (government agent, model of the market sector)

model of the labour market (how employers and employees cooperate)

9


TAXSIM is...TAXSIM is...

• … a simulator that aggregates

Law enforcement

Motivation towards compliance

Taxpayers' goals

• … rather a family of models than a simple model

10


Earlier Results

-“The only thing new in this world is the history that you don't know”(Harry S. Truman)

11

First Set of Results

• Starting from a ‘pessimistic’ sector, we investigated three scenarios:

• Improving governmental services (taxpayers more often override optimal decisions)

• Voluntary shift to total legalization (one company, cca. 15% market share)

• Preferential taxes for companies (can afford higher wages at legal employment type)

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000

Tick

Em

plo

yed

Employed Legal employments Mixed employments Hidden employments

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

0 100 200 300 400 500 600 700 800 900 1000 1100 1200

Tick

Em

plo

yed


0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

160

170

180

190

200

0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 5500 6000

Tick

Em

plo

yed


0

20

40

60

80

100

120

140

160

180

200

020

040

060

080

010

0012

0014

0016

0018

0020

0022

0024

0026

0028

0030

0032

0034

0036

0038

0040

0042

0044

0046

0048

0050

0052

0054

0056

0058

0060

00


Studied the effect of social network topologies

• Two-dimensional grid

spatial/geographical

• Erdős-Rényi random graph (used in original studies)

small world

• Watts-Strogatz network

spatial/geographical

small world

clustered

• Real topologies depends on the modeled sector (construction, telco, etc.)

Compliance depends on social network topology

• Using random graph or Watts-Strogatz network results converge to the same equilibrium, but W-S is faster

• Using a two dimensional grid agents don’t reach the optimal solution


Survey-Driven „Calibration”

-”To find out what happens when you change something, it is necessary to change it”(anonymous)

16

Motivation

• The Institute of Economics, Hungarian Academy of Sciences carried out a survey among Hungarian tax payers

• We wanted to see how much TAXSIM can be made compatible with empirical findings.

• Also, we wanted to make the behavior of the Tax Authority more realistic (i.e., adaptive vs fully random)


Selected Findings of the Survey

• Survey data shows that Hungarian tax payers estimate the probability of discovered tax avoidance to be 64%

• Real audit probability is 3%

• 73% of the respondents claimed that would comply even if audit probability was 0%


Adaptive Tax Authority

• The Hungarian Tax Authority assigns tax payers into three categories for audits:

• Not audited yet

• Audited and complying

• Audited, non-complying(Further, sector and income specific categories are not applicable)

• In TAXSIM the adaptive TA selects

• the neighbors (in the social net) of

the audited, non-complying agents.


Survey-Driven Expectations

1. Citizens overestimate audit probability

2. There is about 73% of agents who would fully comply (pay taxes) even with an audit probability of 0%

3. Adaptive audit strategy increases compliance

4. Atomized society would yield a larger shadow economy (i.e., the social network is important)



ResultsResults

-”The best time to plan an experiment is after you have done it.”R. A. Fisher

21

Citizens Overestimate the Probability of Audits

• Not observed

• Agents respond to the acts of discovery by the Tax Authority (on them or on agents in their network). However, there is no adaptation act responding to succesful non-compliance.

• Agents learn the audit probability almost perfectly.


High Compliance in Face of No Audits

• Not observed

• Agents are cost optimizers. This is a strong motivation for non-compliance.

• The two opposite motivators are audits and satisfaction with governmental services.

• The latter was shown earlier to be enough to improve compliance

• Remark: the expectation was never observed (but claimed by respondents)


Adaptive Audit Strategy Improves Compliance

• Opposite results: adaptive Tax Authority yields higher level of non-compliance.• The simulated society turns illegal much

faster.• Agents continue to see non-compliance as a cost

optimization tool. • Audits and fines are the cost of this tool.• Adaptivity increases the efficiency of the Tax

Authority, but this only increases the costs of „production”. Those who are not „illegal enough” cannot afford this and go bankrupt.


Social Networks Matter

• Confirmed• Less information, more non-compliance

(remember, cost optimization is the main driver!)



Conclusions and Conclusions and Future WorkFuture Work

-”Perfection is not possible; it's always approximation”(anonymous)

28

Conclusions and Future Work

• Only 1 in 4 expectations confirmed

• Overestimation could perhaps be achieved if we let the agents develop „false confidence”

• Clearly, cost optimization is a very strong driver in this model

• Yet, we intend to find the „turning point”: i.e., the level of governmental services that would make agents comply even without audits

• The adaptive strategy made the Tax Authority more efficient, but fines were kept fixed

• Thus, it was possible to „price in” the fines. Further parameter studies are warranted.



Thank You!Thank You!http://taxsim.mass.aitia.ai

[email protected]@aitia.ai

30

mailto:[email protected]

mailto:[email protected]

An Agent-Based Tax Evasion Model Calibrated Using Survey Data Attila Szabó 1,2, László Gulyás...

Documents

Transcript of An Agent-Based Tax Evasion Model Calibrated Using Survey Data Attila Szabó 1,2, László Gulyás...