Using Deep Q-learning to understand the tax evasion behavior of risk-averse firms

Nikolaos Goumagias, Dimitrios Hristu-Varsakelis, Yannis Assael

    Research output: Contribution to journalArticlepeer-review

    11 Citations (Scopus)
    35 Downloads (Pure)

    Abstract

    Designing tax policies that are effective in curbing tax evasion and maximize state revenues requires a rigorous understanding of taxpayer behavior. This work explores the problem of determining the strategy a self-interested, risk-averse tax entity is expected to follow, as it "navigates" - in the context of a Markov Decision Process - a government-controlled tax environment that includes random audits, penalties and occasional tax amnesties. Although simplified versions of this problem have been previously explored, the mere assumption of risk-aversion (as opposed to risk-neutrality) raises the complexity of finding the optimal policy well beyond the reach of analytical techniques. Here, we obtain approximate solutions via a combination of Q-learning and recent advances in Deep Reinforcement Learning. By doing so, we i) determine the tax evasion behavior expected of the taxpayer entity, ii) calculate the degree of risk aversion of the "average" entity given empirical estimates of tax evasion, and iii) evaluate sample tax policies, in terms of expected revenues. Our model can be useful as a testbed for "in-vitro" testing of tax policies, while our results lead to various policy recommendations.
    Original languageEnglish
    Pages (from-to)258-270
    Number of pages40
    JournalExpert Systems with Applications
    Volume101
    Early online date1 Feb 2018
    DOIs
    Publication statusPublished - 1 Jul 2018

    Fingerprint

    Dive into the research topics of 'Using Deep Q-learning to understand the tax evasion behavior of risk-averse firms'. Together they form a unique fingerprint.

    Cite this