Risk Perception and Risk Attitude on a Tax Evasion Context

Abstract

When considering tax reporting, taxpayers have an individual attitude
towards the risk of being caught evading taxes by the tax authorities. This
attitude is interdependent with how this inherent risk is perceived. We propose
to analyse this phenomenon through a risk perspective by adding a risk attitude
and corresponding perceived probability of being caught evading. In this paper,
we study the dynamics of tax evasion under risk perception and attitude, and the
consequent propensity of imitators to evade or to comply. Under this proposal,
we conduct our experiments through a multi-agent based simulation. Simulation
results suggest first that the risk attitude, in conjunction with perceived risk and
its consequences are the main reasons to guarantee a low level of tax evasion.
Secondly, results also demonstrate a non-linear impact of tax rate, investment
interest rate and fines which is especially interesting and non-intuitive.