Determining the Main Factor and Scope of Collusion in the Game between Taxpayers and Tax Auditors

Document Type : modeling

Authors

1 Ph.D. Student in Economics, Department of Economics and Political Sciences, Shahid Beheshti University, Tehran, Iran

2 Assistant Professor in Economics, Department of Economics and Political Sciences, Shahid Beheshti University, Tehran, Iran.

10.30473/jier.2026.77351.1531

Abstract

Collusive corruption between taxpayers and tax auditors is one of the most destructive forms of illegal behavior, leading to a reduction in government revenues and tax injustice. This study employs game theory to model the strategic interactions between these two groups and seeks to answer the fundamental question: what is the main factor and necessary condition for the formation of collusion? For this purpose, four different scenarios are defined based on whether each player is willing or unwilling to engage in collusion, and the Nash equilibrium for each scenario is calculated. The most important results are presented as two key findings. First, if the amount proposed by taxpayers to auditors for collusion is sufficiently high, then the tax auditors will set their assessed tax equal to the declared tax of the taxpayers (in other words, they turn a blind eye to income underreporting). Second, analogous to the logic of the Granger causality test, it is found that taxpayers' willingness to collude is the main and causal condition for the occurrence of collusion, and the mere willingness of auditors without taxpayers' willingness does not lead to a stable collusion. These findings can be used in designing preventive policies against collusion.

Keywords

Main Subjects

References

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Journal of Industrial Economics researches
Volume 9, Autumn & Winter , vol. 33
October 2025
Pages 215-236

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History

  • Receive Date: 08 February 2026
  • Revise Date: 11 May 2026
  • Accept Date: 06 June 2026

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