Decision Support for Public Tax Policies through Social Simulation

ABSTRACT. We introduce social simulation as a methodology to tackle a high complexity problem arising in the field of public policy decision making: tax compliance (evasion). The core of the problem is that the standing general economic theories cannot even explain why people comply as much as they do, much less make predictions or support prescriptions for the public entities. The compliance decision is a challenge posed to rational choice theory, and one that defies the current choice mechanisms in social systems. Our proposal is to simulate rationally-heterogeneous individuals immersed in a highly social environment. We aim at understanding what is really involved in the individual decision process, with the perspective of sketching some of the inter-influences between the individuals ’ behaviour and the whole society behaviour. We propose a series of individual/social models. Results of some exploratory simulations are presented and discussed. We establish some preliminary conclusions: social imitation and local neighbourhood enforcement and reputation are far more important than individual perception of expected utility maximising, in what respects compliance decisions