A Contribution of Expected Utility Theory in Taxpayers Behavior Modeling

Transcription

1 International Journal of Economics an Financial Issues ISSN: available at http: International Journal of Economics an Financial Issues, 2016, 6(3), A Contribution of Expecte Utility Theory in Taxpayers Behavior Moeling Fari Ameur 1 *, Mohame Tkiouat 2 1 Stuies an Research Laboratory in Applie Mathematics (LERMA), Mohammaia School of Engineering, Mohame V University, Rabat BP. 765, Morocco, 2 Stuies an Research Laboratory in Applie Mathematics (LERMA), Mohammaia School of Engineering, Mohame V University, Rabat BP. 765, Morocco. * ameur_fari@yahoo.fr ABSTRACT We try to analyze the attitues of taxpayers regaring tax system. We propose an approach which combines between theory an practice. In the first step, we present a normative approach; base on a theoretical stuy. In orer to prouce an empirical knowlege of an aspect of reality we present a escriptive approach; base on a survey of ifferent categories of taxpayers. We have release some conitions of the moel of expecte utility an we have introuce a new parameter reflecting the efficiency of tax control. Previous stuies are base on a maximal efficiency tax control (100%) which is a particular case of our moel. We foun that for Moroccan case, the frau is relate to the size of companies; it s more important in the big companies than small an meium enterprises. The finings will help tax authorities to achieve their goals in fighting tax frau. Keywors: Expecte Utility, Prospect Theory, Survey, Unergroun Economy, Tax Frau, Tax Authority, Tax Auit, Tax Compliance, Taxpayers, Behavior JEL Classifications: H3, C5 1. INTRODUCTION The behavior of frauulent taxpayers has a negative impact on the resources available to finance essential public services of the country; it creates istortions of competition an inequality, harming honest taxpayers. The stuy of the eterminants of fiscal policy has been publishe by the Organization for Economic Cooperation an Development (OECD), shows that in recent years, tax reforms were implemente to answer not only the nee to improve the performance of the economy, but also to banne the phenomenon of evasion an tax frau. Concerning Morocco, the government is unergoing many changes in fiscal system. The challenge is to have a competitive an efficient tax system which helps to improve the economic an social environment. The role of tax aministration is to stop such behavior that alters the social contract. In fact, there is always a ifference between the methos an tools of tax frau an tax auit. But to reuce the cost of this unequal conflict, tax aministrations have to be intereste in unerstaning the manifestations of this phenomenon an its causes, they shoul give more attention to the factors that etermine the behavior of taxpayers so that they can then esign an implement a more effective set of responses that can aress the unerlying causes of iniscipline an not the symptoms. In this paper, we examine this phenomenon base on the moel of Allingham an Sanmo, 1972 improve by several authors such as Yitzhaki, 1974, Koskela, 1983, Caplin an Leahy, 2001, Bazart, 2002 an Ameur an Tkiouat, 2012 (this list is not exhaustive). The literature on tax frau has shown controversial results, the hypotheses of proportional taxation of eclare income associate with a penalty on issimulate income q*(i x) are the essential hypothesis of the moel of Allingham an Sanmo, In this context, the taxpayer chooses the amount of income to eclare, x, in orer to maximize his expecte utility (EU). The results obtaine show that increasing the penalty has a positive incentive on taxpayer to be honest in his tax report. However, the variation in eclare income compare to the level of taxation t is unetermine in the moel of Allingham an Sanmo, International Journal of Economics an Financial Issues Vol 6 Issue

2 The question is: Does the proportion of reporte income increases as isposable income? This inetermination was lifte by Yitzhaki, 1974, he consiere the problem of tax frau as a framework similar to that efine by Allingham an Sanmo (AS), but in which the penalty, enote q, concerns specifically the evae tax: t*(i x). The result obtaine by Yitzhaki shows that the moel of EU theory (EUT) forecasts a negative relationship between evasion an tax rates when two conitions are satisfie. First, fines are enforce an secon the preferences of taxpayers fulfill the eclining absolute risk aversion s assumption. Several works consier this result contraicts the intuition; it was calle the Yitzhaki paraox. Some empirical literature (Cebula an Feige, 2011) shows that there is a positive relationship between tax rate an tax frau. In 1979, Kahneman an Tversky evelope a new theory colle the prospect theory constructe from experimental work. This theory criticizes the EUT (Ameeo an Matthew, 2013; Dhami an al-nowaihi 2007). The overall tren is that PT gives results closer to the reality than EUT. Some authors argue that PT can reverse the Yitzhaki paraox, especially those basing on experimental finings which show a positive relationship between evasion an tax rates. Dhami an al-nowaihi claim that the prospect theory can reverse the Yitzhaki pulzze, but Ameeo an Matthew, 2013, when consiering that the utility is homogenous, the result was that the reference epenent moel cannot reverse Yitzhaki pulzze. Ameeo an Matthew, 2013 an Dhami an al-nowaihi, 2007, expan their moel to inclue a cost calle stigma relate to the possibility of etecting the cheating. They conclue that: The prospect theory cannot reverse the Yitzhaki pulzze when stigma is equal to zero. Also, when the moel of EUT is expane with stigma, it can inverse the Yitzhaki pulzze. Therefore, one cannot conclue that the capacity of reference epenent moel to reverse the paraox is greater than the one of the moel of EUT. The authors then argue that the application of the prospect theory to tax evasion fall short when tax evasion increases in the marginal tax rate. New approaches to specify the reference level are then neee. In the moel of Allingham an Sanmo, 1972, as well as for others moels evelope thereafter, it is suppose that after tax auit, tax aministration has a comprehensive knowlege on the real value of the chosen taxpayer s income. But in the reality, tax aministration can t etect all the mistakes or the omissions an the frau that can be mae by a taxpayer in orer to minimize his revenue eclaration. We prove that the importance of tax frau, regaring taxpayer income, is relate to the penalty q an the effectiveness of tax auit that we note r. In this research, we are going to investigate the question of how can EUT or PT explains the frauulent behavior of taxpayers. Our objective is to be able to ientify which moel can explain more the behavior of taxpayers. This paper is organize as follows: After the introuction in Section 1, we show in Section 2 why it is important to stuy tax frau in Morocco, by proucing some statistics an illustrating the role of tax auit in fighting tax frau. In Section 3, we analyze the results of some previous stuies of some authors who examine the issue of the behavior of frauulent taxpayers base on EUT an PT. In Section 4, we show by presenting some examples that the result of PT moel is not always true, after that, we present the results of a survey of taxpayers that we mae in orer to ientify the most important parameters that influence Moroccan taxpayers attitues an tax compliance behavior towars tax system. We outline the results of our theoretical work which we project on the Moroccan case to evaluate the relevance of the last fiscal legislative ecisions. In Section 5, we conclue this paper; we present our results an we propose some recommenations which can help to unerstan better taxpayer s behavior an improve tax auit effectiveness. 2. WHY IT IS IMPORTANT TO STUDY TAX FRAUD IN MOROCCO? Tax plays a crucial role in public finances. It allows the country to finance its public spening, an istribute incomes. Also, it is consiere as an instrument of economic an bugetary policies. These tax functions push the state to innovate in orer to improve its tax system. In Morocco, the situation of public finances is isturbing which obliges the state to search for other opportunities in all promising niches that can help in increasing its resources. Among the possible niches that arise is the informal sector an tax evasion Some Statistics Accoring to a stuy one by the high commission for planning (HCP) of Morocco, the informal sector is preominant in the Moroccan economy. It grows from 1 year to another uner the pressure of various economic, emographic an social factors. The survey ata of the informal sector survey conucte by the HCP in 2007 base on a sample of 10,259 informal prouction units show that it inclues at the en of 2007 nearly 1,550,000 informal prouction units. Nearly 40,000 new units are ae to this sector annually. At the en of 2012, this sector has alreay about 1.75 million units this is an upate base on an annual increase of 40,000 new units (Figure 1). A stuy of the eterminants of the fiscal policy has been publishe by the OECD, shows that in recent years, tax reforms were implemente to answer not only the nee to improve the performance of the economy, but also to prohibit the phenomenon of evasion an tax frau. In general, we can notice that the behavior of frauulent taxpayers has a negative impact on the resources available to finance essential public services of the country; it creates istortions of competition an inequality, harming honest taxpayers. The role of tax aministration is to stop such behavior that alters the social contract. In fact, there is always a ifference between the methos an tools of tax frau an tax auit. In orer to reuce the 1218 International Journal of Economics an Financial Issues Vol 6 Issue

3 cost of this unequal conflict, tax aministrations must unerstan such phenomenon an its causes, they shoul give more attention to the factors that etermine the behavior of taxpayers so that they can then esign an implement effective set of responses that can aress the unerlying causes of iniscipline not the symptoms Tax Auit as a Tool to Fight Tax Frau Tax auit is the ultimate guarantee of tax compliance an tax equality. It seeks to unerstan what is missing in tax law, whether committe intentionally or not, to recover unpai taxes, punish ba practices an iscourage temptations, while istinguishing between all these behaviors. It has the following three objectives: Deterrent: Which consoliates the tax compliance of all taxpayers (it is to be present everywhere not to allow the creation of wastelan or geographical or socio professional, or with very small firms). Bugetary: Which aims to recover quickly an effectively evae tax, regarless of the reason for the reform, intentional or not. Authoritarian: Tax auit penalizes the most frauulent behavior of the financial plan as well as of the criminal lone. For Morocco, the legislator has introuce a number of arrangements in the general tax coe in relation to the tax auit in orer to encourage entrepreneurs in the informal sector to ientify their business an push the frauulent to become honest in their tax eclarations. Figure 1: Distribution of informel sector in Morocco Source: High Commission for Planning - Morocco Among these measures: The ecrease of corporate tax rate from 30% to 15% for very small businesses. At the same time, the tax aministration has investe a lot to improve fiscal control an has evelope a plan with the main following aspects: The improvement of the selection of files submitte to the control; The availability of auitors of IT tools; The increase of professional training; The encouragement of settling conflicts kinly. These measures have ha a positive impact on tax revenues as shown in the Figure 2. In particular, tax revenues from fiscal control have increase but their share in the structure of tax revenues remains low (Figure 3). From these Figure 3, we can affor to suggest that the efforts mae by the Moroccan government in recent years in terms of legislative ecisions or control an compliance with the tax law, have given fruit to fight against the phenomenon of informal an tax evasion. But we cannot ecie if these improvements are effectively the result of measures taken by the government or there are other factors that le taxpayers to be honest in their statements. Next sections will help us to have a clear answer of this question. 3. PREVIOUS RESEARCH The phenomenon of tax frau was stuie by Allingham an Sanmo (1972) basing on EUT evelope by John von Neumann an Oskar Morgenstern in The original assumptions of the moel of AS were graually release by several authors, Yitzhaki (1974), Koskela (1983), Caplin an Leahy (2001) an Bazart (2002) (this list isn t exhaustive). However, a consensus remains on some of them. The main characteristic of these assumptions is a methoological choice, base on observation. This methoology argues that tax evasion is a ecision-making uner uncertainty. Besies, the agreement also appears on the parameters that affect the optimal ecision of iniviual taxpayer. In 1974, Yitzhaki foun that the moel of EUT forecasts a negative relationship between evasion an tax rates when two conitions Figure 2: Evolution of Moroccan tax revenue in millions - MAD an its % of gross omestic prouct Source: Ministry of Economy an Finance - Morocco International Journal of Economics an Financial Issues Vol 6 Issue

4 Figure 3: Evolution of tax auit revenue Source: Ministry of Economy an Finance - Morocco are satisfie. First, fines are enforce an secon the preferences of taxpayers fulfill the eclining absolute risk aversion s assumption. Several works consier this result contraicts the intuition; it was calle the Yitzhaki paraox or Yitzhaki puzzle. In 1979, Kahneman an Tversky evelope a new theory colle the prospect theory constructe from experimental work. This theory criticizes the EUT (Ameeo an Matthew, 2013; Dhami an al-nowaihi, 2007). The overall tren is that PT gives results closer to the reality than EUT. Some authors argue that PT can reverse the Yitzhaki paraox, especially those basing on experimental finings which show a positive relationship between evasion an tax rates. Accoring to Dhami an al Nowaihi (2007), prospect theory has explaine the problem of tax evasion in appropriate way. Hashimzae et al. (2013), argues that when applying the prospect theory, the tax effect s irection is not reverse. It simply epens on the choice of the level of tax that can impact its irection. In orer to analyze the alternatives of a reference epenent moel with the ecision of tax evasion, Ameeo an Matthew (2013) vary the elements of the prospect theory which are fixe, the reference of tax level, an the auit s probability that may epen on the eclaration of tax payers. They then ivie the prospect theory into four main elements which are: Reference epenence; the outcomes are referee accoring to a reference level of wealth. Then, ecreasing sensitivity: It implies a convex preference above the outcomes that are below the reference level an concave preference above the outcomes which are over the reference level. The thir element is the isutility of a loss surpasses the utility of a gain. The last element is probability weighting when objectives probabilities are converte to ecision weights. This ecomposition of the prospect theory allows ientifying the elements that can inversion the Yitzhaki pulzze. The results show that the Yitzhaki pulzze is not reverse by only introucing the reference epenence when holing the probability of the auit an the reference level fixe. However, both the reference epenence an ecreasing sensitivity reverse the Yitzhaki pulzze if the payoff is below the reference level. During the analysis process, probability weighting an loss aversion showe that they have no effect to ownturn the Yitzhaki pulzze. Besies, the reference level is enough to reverse the Yitzhaki pulzze if the reference level is sensitive enough to the level of tax rate. However, the Yitzhaki pulzze is reverse in case if the reference level is insensitive to the tax rate an when both the ecreasing sensitivity an reference level are suppose. Accoring to Ameeo an Matthew (2013), there are some terms of the reference level which are not sensitive enough to the tax rate to inverse the Yitzhaki pulzze when taking into consieration only the reference epenence. However, those specifications can be sensitive to the tax rate an reverse the Yitzhaki pulzze when combining ecreasing sensitivity with reference epenence. Among the specifications of the reference level is when the post-tax wealth of the taxpayer. The reference epenent moel cannot reverse the Yitzhaki pulzze when utility is set to be concave or to show ecreasing sensitivity. These finings are strong in a set of specifications of the reference level like the tax gamble s expecte value which permits the epenency of eclaration of the taxpayer. Dhami an al-nowaihi claim that the prospect theory reverses the Yitzhaki pulzze, but Ameeo an Matthew (2013), when consiering that the utility is homogenous, the result was that the reference epenent moel cannot reverse Yitzhaki pulzze. Ameeo an Matthew (2013) an Dhami an al-nowaihi (2007), expan their moel to inclue a cost calle stigma relate to the possibility of etecting the cheating. They conclue that: The prospect theory cannot reverse the Yitzhaki pulzze when stigma is equal to zero. Also, when the moel of EUT is expane with stigma, it can inverse the Yitzhaki pulzze. Therefore, one cannot conclue that the capacity of reference epenent moel to reverse the paraox is greater than the one of the moel of EUT. The authors then argue that the application of the prospect theory to tax evasion fall short when tax evasion increases in the marginal tax rate. New approaches to specify the reference level are then neee. 4. RESULTS AND DISCUSSION In this section, we present our methoology an the results obtaine. Our approach is a balance between practice an theory. At first; we point out the shortcomings of PT moel. After that, we present an empirical stuy that we mae on a sample of 300 taxpayers. The objective of this stuy is to investigate how taxpayers, qualify the relationship between taxpayers an tax 1220 International Journal of Economics an Financial Issues Vol 6 Issue

5 epartment, an to ientify the level of taxpayers attitues an tax compliance behavior towars tax system. The results of this stuy help us to verify if the theoretical results of the literature can be applicable for the Moroccan case. In the secon part, we present our theoretical results; base on previous EUT moel. With some moifications of AS, we argue that espite critics to EUT, PT moel isn t more important than EUT Critics to Some Previous Results: PT Moel against EUT Moel All previous researches that criticize the EUT moel base their analysis on the fact that the result obtaine by the EUT moel is against intuition an it is inconceivable that frau is ecreasing as a function of tax rates (Ameeo an Matthew, 2013; Dhami an al- Nowaihi, 2007). The position of these researchers was motivate by some surveys an investigations. Inee, if we consier that the result obtaine by the EUT is against intuition, it means that all taxpayers have the same behavior; they suppose that tax rate is the most important parameter that influences their behavior regarless of the egree of tax compliance of each taxpayer. The following example can escribe more this point: We consier two taxpayers C1 an C2, the first is known by his honesty an tax compliance. All ajustments that C1 i after ifferent tax auits were the results of errors or omissions, no frau was raise. C1 is satisfie that these contributions allow the state to provie services to citizens an therefore an increase in tax revenues that automatically create more services. He is willing to contribute as far as the contribution oes not excee a given limit. The secon taxpayer consiers that the tax is a violation of his rights because the state oes not give him a real part against his contribution. C2 always seeks the opportunity to minimize his contribution; in particular a ecrease in the amount of the penalty may encourage him to increase his frau. If we place a policy to reuce tax rate: For C1: The state will lose some of these revenues without any effect on the behavior of the taxpayer. For C2: The state will lose some of these revenues since the effect of the ecrease in tax penalty encourages him to increase his frau. We conclue that more a value of tax rate (that we name optimum rate top); tax frau increase as a function of tax rate. However, tax frau ecrease or oesn t change in function of tax rate. The result of this survey shows that small taxpayers are more sensitive to tax auit. (We present in this paper some of the results obtaine). The sample of the stuy consists of 150 very small enterprises, 110 small an meium enterprises an 40 large companies (Figure 5). Binary logistic regression was applie to the results of the responents surveye. The results obtaine show that tax auit effectiveness, tax justice, public services, fiscal pressure, tax culture, tax system instability, lure of profit an economic conitions are statistically significant an o impact Moroccans taxpayers attitue towars Moroccan tax system. The Figure 4 shows the importance of each variable on frauulent taxpayers behavior. From the Figure 6, we notice that tax auit effectiveness is the first factors which encourage taxpayers to frau. In the secon Figure 4: Tax frau as a function of tax rate for C1 an C2 Figure 5: Distribution of the sample Figure 6: Determinants of tax frau for Moroccans taxpayers We can schematize this result shown in Figure Empirical Evaluation of the Previous Results: PT Moel against EUT Moel Through a questionnaire aresse to a sample of 300 taxpayers in the region of Casablanca in Morocco, we trie to investigate the relationship between taxpayers an the tax aministration in orer to ientify the main parameters that most influence taxpayer s behavior, in particular the sensitivity of taxpayers to changes of the parameters of the tax system an to the eterrent effect of a tax auit. International Journal of Economics an Financial Issues Vol 6 Issue

6 step, we fin public services an in thir position tax pressure. This means, that it is possible that a ecrease of taxes rate can t irectly influence the behavior of taxpayers to be more honest contrary to what is avance by PT moel EUT Moel with Some New Assumptions EUT moel To use the avance of the moel of Allingham an Sanmo, 1972, taxpayer s behavior is consistent with the axioms of von Neumann-Morgenstern utility function an is solely epenent on isposable income. The taxpayer is assume to be risk-averse thus this function has a positive marginal utility an strictly ecreasing. In orer to represent taxpayers behavior regaring risk, we use measures of risk aversion of ARROW PRATT which are efine an recore by: Ak ( ) = U''( k)/ U'( k) : Inex of absolute risk aversion. Rk ( ) = U''( k). k/ Uk ( ): Inex of relative risk aversion. With k income level an: U > 0 an U < 0. The original assumptions of the moel of AS were graually release; however, a consensus remains on some of them. The main characteristic of these assumptions is a methoological choice, base on observation. This methoology argues that tax evasion is a ecision-making uner uncertainty. Besies, the agreement also appears on the parameters that affect the optimal ecision of iniviual taxpayer (the attitue to risk, the tax rate, the actual level of income, the probability of etection, the penalty incurre following the etection). The moel of AS 1972 is given by: EU = ( 1 pu ) ( I ) + pu( I ) (1) n With: In = I tx an I = I tx qi ( x ) While: I: Real income of the taxpayer, here is an exogenous variable an is known but ignore by the taxpayer of the tax aministration I n : Disposable income where the taxpayer is not foun in the frau I : Disposable income after the tax auit of the taxpayer x: Income eclare ecision variable of the taxpayer t: Tax rate, constant on the amount of reporte income, x q: The rate of penalty for unreporte income p: The probability of etection. It is assume that after the fiscal control, tax aministration has a comprehensive knowlege of the actual amount of taxpayer s income Somme previous results Some previous stuies base on EUT has shown controversial results, the hypotheses of proportional taxation of eclare income associate with a penalty on issimulate income q(i x) are the essential hypothesis of the moel of Allingham an Sanmo, In this context, the taxpayer chooses the amount of income to eclare, x, in orer to maximize his EU. The results obtaine show that increasing the penalty has a positive incentive on taxpayer to be honest in his tax report. However, the variation in eclare income compare to the level of taxation t is unetermine in the moel of Allingham an Sanmo, The question is: Does the proportion of reporte income increases as isposable income? This inetermination was lifte by Yitzhaki, 1974, he consiere the problem of tax frau as a framework similar to that efine by Allingham an Sanmo, but in which the penalty, enote q, concerns specifically the evae tax: t*(i x). The result obtaine by Yitzhaki shows that tax frau ecrease when the tax rate increase. But empirical literature (Cebula an Feige, 2011) shows that there is a positive relationship between tax rate an tax frau. In the moel of Allingham an Sanmo, 1972, as well as for others moels evelope thereafter, it is suppose that after tax auit, tax aministration has a comprehensive knowlege on the real value of the chosen taxpayer s income. But in the reality, tax aministration can t etect all the mistakes or the omissions an the frau that can be mae by a taxpayer in orer to minimize his revenue eclaration. We prove that the importance of tax frau, regaring taxpayer income, is relate to the penalty q an the effectiveness of tax auit that we note r Previous results are a special case of our contribution Let r be the coefficient of tax auit effectiveness. As we mentione before, tax aministration cannot etect all the anomalies or the omissions an the frau that may make a taxpayer in orer to minimize his revenue eclaration. Base on the assumptions of the moel of Allingham an Sanmo, 1972, Bazart, 2002 showe that tax frau ecreases when real income rises. This result represents a special case for our proposal moel with an effectiveness of 100% or r = 1. The moel of Allingham an Sanmo, 1972 as it is given in Equation (1) became: EU = (1 p) U( I ) + pu( I ) (2) n With: In = I tx an I = I tx rq ( I x ) The taxpayer chooses the amount of income to report, x, in orer to maximize his expecte utility, an the conitions for maximum are: (The secon orer conition is enote D) t[ ( 1 p) U'( I ) + prq ( 1) U'( I )] = 0 (3) n 2 2 n D = t [(1 p) U''( I ) + p( rq 1) U''( I ) (4) Proposal: For a given level of penalty q an given an effectiveness of tax auit r, the tax frau woul ecline when real income rises if (rq 1) an it increases in function of income in the opposite case. Demonstration: We can easily prove that: ' x = t( 1 p) U ( In ) AI ( n ) ( 1 rq) AI ( ) I D With respect to the conition of the moel, if (rq 1), so we have: x I International Journal of Economics an Financial Issues Vol 6 Issue

7 We conclue that for a given level of penalty q an given an efficiency of tax auit r, the tax frau woul ecline when real income rises if (rq 1) an it increases in function of income in the opposite case (Figure 7). From Table 1, we can notice that in previous moels, the effectiveness r = 1 (100%) which represent a special case of our moel (Table 2), the value of r is between 0 an Application - Moroccan case We project our theoretical results on the Moroccan case to assess the effectiveness of the last legislative ecisions in fiscal terms. Taking the case of Morocco, for each correction of the tax base after fiscal control, besies the payment of the tax evae, the taxpayer will be penalize by 15% for non-reporting, 10% for non-payment, 5% for 1 st month of elay an 0.5% for each month of elay, which gives a minimum value of q = However, if we increase the penalty an keep the same level of effectiveness of tax auits, taxpayers who have high income are more honest than those with lower incomes. This result is quite logical; for a low income, even if we increase the punishment, its effect on isposable income of the taxpayer frau is minimal. Generally, in morocco, base on experts confirmation from tax epartment, the effectiveness of fiscal control is <80%, so regaring our theoretical result, tax frau increases with income. Which mean that the Moroccan government shoul focus their Figure 7: Tax frau as a function of income where rq<1 an rq 1 Table 1: Previous moels Matrix q*r (penalty rate*tax auit effectiveness) Q R r*q effort on big companies in orer to reuce the effect of tax frau. However, among the latest legislative ecisions of Moroccan government is the ecrease of tax rate from 30% to 10% for very small companies. We notice that meium an big companies are not concerne by this ecision. We conclue that if the target of the government is increasing tax revenue ue to tax auit, the government shoul select big an meium companies for control. However, if the target is enlarge tax base an attract the informal sector to integrate the formal economy, the legislative ecision shoul take time in consieration; instea of very small an meium companies, the reuce of tax rate from 30% to 10% must concern new companies. 5. SUMMARY AND CONCLUDING REMARKS The results of our stuy o not show that EUT moel is better than PT moel contrary to what it is state by some other authors. We conclue that each moel can help to unerstan taxpayers behavior base on its own initial assumptions. We notice that there is complementary relationship between those two moels. The moels state above concerning the EUT, represent a special case of our moel. Where tax auit effectiveness is equal to 1 (100%), our moel give the same results as others moel, but in the reality tax auit effectiveness can t be at its maximal value. Tax aministration is always trying to fin an control companies that represent a major risk in terms of tax frau. The result of our work will be a guie for the selecte companies that will be controlle by referring to the parameters of the tax system that is in place. Moreover, base on this fining an by applying it to the Moroccan case that represent a low effectiveness in terms of tax auits an that sanction policy are fairly flexible. It is important to aress the control to big businesses. Yet, such companies represent a negligible percentage of the overall tax population an a concentrate an continuous auiting will isrupt their evelopment an their growth, especially that their contribution excees 80% of total tax revenues. On the other han, the auit of small an very small enterprises is expensive for the tax aministration because it nees to increases the number of files to auit an increase also the number of auitors as well. Table 2: Our moel Matrix q*r (penalty rate*tax auit effectiveness) R q International Journal of Economics an Financial Issues Vol 6 Issue

8 We can also notice that tax auit is not enough to avoi tax evasion, tax authorities must look for other tools to struggle frau, especially using avance tools of risk analysis for planning files to be controlle. We propose that tax authority shoul perceive the frauulent taxpayers not only as robbers but also as clients; we suggest the improvement of the relationship between taxpayers an the government in orer to create a climate of cooperation an trust. REFERENCES Allingham, M.G., Sanmo, A. (1972), Income tax evasion: A theoretical analysis. Journal of Public Economics, 1, Ameeo, P., Matthew, D.R. (2013), Prospect Theory an Tax Evasion: A Reconsieration of the Yitzhaki Puzzle. IZA Discussion Paper No Available from: Ameur, F., Tkiouat, N. (2012), Taxpayers frauulent behavior moeling the use of atamining in fiscal frau etecting moroccan case. Applie Mathematics, 3(10), Bazart, C. (2002), The behavior of tax frau: Taxpayers facing tax aministration. French Journal of Economics, XVI, Caplin, A., Leahy, J. (2001), Psychological expecte utility theory an anticipatory feelings. Quarterly Journal of Economics, 116(1), Cebula, R., Feige, E.L. (2011), America s Unergroun Economy: Measuring the Size, Growth an Determinants of Income Tax, MPRA Paper No , Marcha. Available from: ub.unimenchen.e/29672/. Dhami, S., al-nowaihi, A. (2007), Why o people pay taxes? Prospect theory versus expecte utility theory. Journal of Economic Behavior an Organization, 64(1), Hashimzae, N., Myles, G., Tran-Nam, B. (2013), Applications of behavioural economics to tax evasion. Journal of Economic Surveys, 27(5), (In Press). Kahneman, D., Tversky, A. (1979), Prospect theory: An analysis of ecision uner risk. Econometrica, 47, Koskela, E. (1983), On the shape of tax scheule, the probability of etection, an the penalty schemes as eterrents to tax evasion. Public Finance, 38, Yitzhaki, S. (1974), A note on income tax evasion: A theoretical analysis. Journal of Public Economics, 3(2), International Journal of Economics an Financial Issues Vol 6 Issue