The Application of Game Theory in Determining Performance Tax Rates and Influential Factors

Document Type : Research Paper

Author

Shahid Beheshti University

10.22111/ijbds.2025.50578.2188

Abstract

The implementation of an effective tax system requires specific conditions, among the most critical being equity and efficiency. Taxation on income must align with the principle of the ability to pay; therefore, governments strive to set tax rates appropriately and impactfully. An disproportionate increase in income tax rates can lead to significant social repercussions on income distribution and public welfare. Consequently, calculating the optimal tax rate to maximize social welfare is deemed essential. This paper models the strategic interaction between taxpayers and the tax authority to achieve an optimal tax rate and identifies the factors influencing this rate. By designing a game among taxpayers, assumed to be uniformly distributed within the interval [0, 1], and evaluating the revenue generation of the tax authority, the paper delves into the game formulation and analyses the results. Findings indicate that the optimal tax rate exhibits an inverse relationship with the assessment rates set by investigating groups. Additionally, under specific conditions, the optimal performance tax rate has been determined to be 18%.

Keywords

References

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International Journal of Business and Development Studies
Volume 17, Issue 1
March 2025
Pages 121-137

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