Personal Income Reporting And Income Tax Evasion

When the taxpayers are facing with the decision whether they should declare their income to the government and how much they should declare, which factors will affect their decisions? Based on the Allingham-Sandmo-Yatzhaki Tax Evasion Model, the tax rate, audit probability, penalty rate and taxpayers'real income are included. Social psychological factor has been introduced into the model in this essay, where taxpayers are risk aversion. Hence the essay establishes an Expected Utility Maximization model with five independent variables, and discusses the relationship between taxpayers'declared income and each variable. Considering the situation of personal income taxation in China nowadays, the model and variable analysis can provide theoretical basis to the policy maker in order to improve the taxation scheme and personal income declaration system.