  In this work I clarify VAT evasion incentives through a game theoretical
approach. Traditionally, evasion has been linked to the decreasing risk
aversion in higher revenues (Allingham and Sandmo (1972), Cowell (1985)
(1990)). I claim tax evasion to be a rational choice when compliance is
stochastically more expensive than evading, even in absence of controls and
sanctions. I create a framework able to measure the incentives for taxpayers to
comply. The incentives here are deductions of specific VAT documented expenses
from the income tax. The issue is very well known and deduction policies at
work in many countries. The aim is to compute the right parameters for each
precise class of taxpayers. VAT evasion is a collusive conduct between the two
counterparts of the transaction. I therefore first explore the convenience for
the two private counterparts to agree on the joint evasion and to form a
coalition. Crucial is that compliance incentives break the agreement among the
transaction participants' coalition about evading. The game solution leads to
boundaries for marginal tax rates or deduction percentages, depending on
parameters, able to create incentives to comply The stylized example presented
here for VAT policies, already in use in many countries, is an attempt to
establish a more general method for tax design, able to make compliance the
"dominant strategy", satisfying the "outside option" constraint represented by
evasion, even in absence of audit and sanctions. The theoretical results
derived here can be easily applied to real data for precise tax design
engineering.
