Corporate Tax Payoff in A Game Theory Approach

Abstract

This article investigates corporate tax payoffs in a repeated game theory approach. An application of mixed strategy infinitely repeated game for corporate tax payoffs is provided with four payment types included under new draft tax procedural law. The Folk Theorem is used to find SPNE of infinitely repeated game strategies. The results demonstrate that: (1) the solution set of zero sum game is linear and that of variable sum game is trapezoidal; (2) Grim-trigger and Tit-for-tat of defection both are not appropriate strategies; (3) in pure and mixed strategy equilibrium, TRA needs high audit rates in order to force CTP to point of indifference; (4) CTP will prefer evading tax indefinitely and if possible request settlement when get caught for evading tax; and (5) the number of qualified tax inspectors and audit rates must be increased to break the courage of CTP evading tax.

Keywords

• Repeated games
• business tax
• tax evasion
• tax law

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