Towards a Three-Player Game Modelization of Corporate Tax Evasion

This paper models corporate tax evasion as a game among three players: tax authorities, shareholders and the manager in order to understand the behavior of corporate tax evasion (CTE), its causes and the possible mechanisms that can alleviate it. For this purpose, a three-level programming is used in order to estimate optimum tax authorities' decision variables that limit the tax evasion. The main finding of this paper is that the existing inequality in penalty rate for tax evasion between shareholders and manager is likely to be related to the bonus rate of tax evasion accorded by shareholders to the manager. Accordingly, this paper recommends that the penalty rate for tax evasion practices must not always be higher for the manager than for shareholders. An alternative tool to limit tax evasion can be considering the probability of tax audit equal to one. Finally, for researchers, this study may serve as model for analyzing taxpayers' behavior in a corporate taxation game