Tax Compliance and Public Goods Provision. An Agent-based Econophysics Approach

Abstract

We calculate the dynamics of tax evasion within a multi-agent econophysics
model which is adopted from the theory of magnetism and previously has
been shown to capture the main characteristics from agent-based based models
which build on the standard Allingham and Sandmo approach. In particular,
we implement a feedback of public goods provision on the decision-making of
selfish agents which aim to pursue their self interest. Our results imply that
such a feedback enhances the moral attitude of selfish agents thus reducing the
percentage of tax evasion. Two parameters govern the behavior of selfish agents,
(i) the rate of adaption to changes in public goods provision and (ii) the threshold
of perception of public goods provision. Furtheron we analyze the tax evasion
dynamics for different agent compositions and under the feedback of public
goods provision. We conclude that policymakers may enhance tax compliance
behavior via the threshold of perception by means of targeted public relations.