A decision support model for tax revenue collection in Greece

In the midst of the financial crisis currently unfolding in Greece, tax revenue collection is considered a top priority. This work describes a dynamic, Markov-based decision support model, aimed at predicting the behavior of a risk-neutral enterprise in Greece, and at evaluating tax policies before they are implemented. We use our model to i) analyze the effectiveness of an alternative taxation option periodically offered by the Greek government, ii) show that in the current environment, a rational enterprise has no incentive to disclose its profits, and iii) identify "virtuous" combinations of parameters which lead to full disclosure of profits. Highlights? We propose a parametric Markov-based DSS model for tax evasion by Greek firms. ? An alternate tax option used by the government raises the incentive for tax evasion. ? We compute the firm's optimal behavior given the parameters of the tax system. ? Our model is used to identify tax parameters which are effective and fair. ? In today's setting, it is optimal for a risk-neutral rational firm to evade taxes.