Mathematical modeling of tax evasion: a case study for Greece

Abstract

The aim of this thesis is to study how taxpayers decide to evade part of their income under certain constraints specific to the nature of their occupation. We further develop a model on taxpayer's compliance decision based on the Standard Model of Yitzhaki by introducing a threshold defined as the fraction of the actual income that is declared. We also make computations to examine taxpayer's response to changes in policy parameters such as the tax penalty coefficient, the tax rate and the probability of tax audits to take place, with respect to the income they decide to hide. We find that taxpayers are motivated to declare a higher portion of their income when policy makers increase the tax penalty coefficient and arrange some more frequent tax audits.