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Title: Tax evasion by risk-averse firms in Greece: a discrete Markov-based optimization model
Authors: Goumagias, Nikolaos D.
Hristu-Varsakelis, Dimitrios
Type: Article
Subjects: FRASCATI::Engineering and technology::Electrical engineering, Electronic engineering, Information engineering
Issue Date: 2013
Publisher: Taylor and Francis
Source: Optimization
Volume: 62
Issue: 8
First Page: 1153
Last Page: 1167
Abstract: We present a Markov-based model of the process via which a ‘representative’ Greek risk-averse firm decides the degree to which it should engage in tax evasion. The model is constructed around a simplified version of the Greek tax system which includes random audits and penalties for under-reporting profits. For its part, the firm is allowed to manipulate its stated profits, potentially exposing itself to future penalty payments, in an attempt to maximize the expected utility of its after-tax wealth. Using our model, we determine the optimal behaviour expected of the firm as a function of the parameters of the tax system, and identify subsets of the audit probability – tax penalty space which ‘remove’ the inventive for tax evasion. This allows us to – among other things – evaluate the effectiveness of the parameter values currently in use and determine the implied level of risk-aversion for the average Greek firm.
ISSN: 0233-1934
Other Identifiers: 10.1080/02331934.2012.707654
Appears in Collections:Department of Applied Informatics

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