Tax evading incentives and compromising

Taxation decreases taxpayers’ disposable income and wealth. For this reason, taxpayers choose to evade tax to compensate this decrease. In modern tax systems that rely on declaration of taxpayers, tax auditing, punishment implementations and suchlike tools are used to provide taxpayers to declare their true income. The high levels of the rate of tax auditing and punishments make taxpayers to declare their income correctly. But in some situations, implementations in taxation system can cause taxpayers to hide their true income. In this paper, effects of “compromising” in Turkish taxation system on tax evading incentives is investigated by a static game theory model. With the assumption of tax authority being aimed at carrying out equitable tax burden and minimizing tax evading levels, the existence of the compromising institute will increase the cost of achieving these goals, or the propensity of tax evasion incentives will increase when the sources are constant.