TAXSIM: A Generative Model to Study the Emerging Levels of Tax Compliance in a Single Market Sector

TAXSIM is an agent‐based model of tax evasion. It is concerned with the operations of a single market sector, where the economic well‐being of agents depends on the employment contracts they make among each other and on its tax content. Tax evasion is a technique to reduce costs (and to raise wages); therefore, it is modeled as a matter of degree rather than a simple binary choice (e.g., complier/evader). This chapter introduces TAXSIM and provides an overview of its capabilities. First, two what–if scenarios are discussed: the effect of gradually increasing quality of government services and the introduction of tax‐preferred multinational companies. This is followed by an exploration of the model's parameter space and a sensitivity analysis of the most important factors. Finally, two model extensions are discussed briefly: the effect of a simple, adaptive tax audit strategy and the impact of implementing a minimum wage policy.