Deriving the Expected Value of the Tax Underreporting Rate
2 Journal on Policy & Complex Systems 4 (2015)
12 Pages Posted: 28 Jul 2015 Last revised: 8 Nov 2016
Date Written: 2015
The principal purpose of this paper is to derive an expected value measure of the tax underreporting rate given only tax authority enforcement data. The main result is that the expected value measure of the underreporting rate is a modified geometric mean function of the audit rate and the proportion of audited returns found to contain underreported tax. This result hopefully allows agent-based model designers to create more valid models that explain the macro-level properties of tax compliance. This, in turn, should allow policymakers to be more certain in their political decisions on tax policy.
Keywords: tax, tax compliance, tax avaidance, underreporting, tax audit, complex systems
JEL Classification: E62, H2, H21, H24, H25, H26, H71, K34
Suggested Citation: Suggested Citation