The Research On Tax Compliance Of Individual Income Tax Based On Prospect Theory And Small Probability Events

With people's rising income level and diversified forms of income,it is becoming increasingly common that taxpayers need to pay individual income tax themselves.Therefore it's particularly important that whether taxpayers pay taxes actively.Behavioral economics is a new subject which combined psychology and economics,in which Bounded rationality hypothesis has been the basis of many applied economics research replacing the completely rational assumption gradually.The paper took the theory and thesis of behavioral economics as the study basis,summarized the development behavioral economics in the study of tax.and then applied some relevant knowledge of behavioral economics to the study that how to improve the personal tax compliance when people pay the individual income tax,hoping to provide a new research approach in the area.Specifically,by means of the prospect theory and the small probability events,the paper discussed the inspection rate currently in our country and pointed that it was advisable to keep a low rate of inspection when the inspection cost at a high level.Taking the inspection rate as exogenous variables,the paper adopted the function model of prospect theory to elicit the function relationship between penalty rate and taxpayer compliance level,and discussed their dynamic relationship.The paper draw a phased conclusion that under the level of low inspection rate,the taxpayer's tax incentive could be improved by raising the penalty rate.On this basis,referencing the experiences of the individual income tax development of the developed countries,the paper pointed that intensity of punishments and diversified way of rewards and punishments could promote taxpayers to pay individual income tax consciously in a short term.From a long-term perspective,reducing the tax administrative costs and improving auditing efficiency could improve tax compliance and reduce tax loss.