A Study On Tax Planning With Games Theory

Tax is one of the forms that government distributes social residual product, which has character of compulsoriness, voluntaries and certainty. To taxpayer, tax is the cost that he must pay, less tax expense equals to more net profit. Under the condition of certain revenue, cost and expense, net profit will increase or decrease with amount of tax payment. With the improvement and intensification of tax administration and severe penalty to the tax dodging, taxpayer will take the consequences of penalty and crack his credit if he or she reduces the tax by illegal way. So, it is the best choice for taxpayer to manage manufacture and financing activities to reduce the tax burden by tax planning.In the paper, I make use of games theory to analyze the tax planning, and the main contents are as follows:1. In the paper, I describe the basic conception of tax planning, specify the definition of tax planning,compare tax planning with tax evasion and tax avoidance,point out the theory foundation of tax planning and introduce the games theory to analyses the players,information,strategies and order of play in tax planning.2. According to the economic effect of tax planning between taxpayers,I points out if there is no other way to reduce tax burden,tax planning is the best strategy,and build the games model of tax planning and tax evasion, works out the equilibrium solution of the model under different condition,and analyses the factors which affects tax planning on aspects of tax administration and taxpayer.3. I analyze the game of tax planning between taxpayer and tax authority,point out if tax authority believes that the legal probability(β) of tax planning is big or the probability of being penalty (λ) is small,(planning,no checking)is the equilibrium solution. Whenβis small orλis big,there is no pure strategies of Nash equilibrium. I analyse the mixed strategies Nash equilibrium,work out the best condition that taxpayers make tax planning and the tax authority carries on the tax check, and explain more about whether the tax planning is legal or on aspect of the space of...