We present a computational evolutionary game model to study and understand fraud dynamics in the consumption tax system, using real-world data of VAT declarations by businesses registered in the Canary Islands, Spain. Players are cooperators if they correctly declare their value added tax (VAT), and are defectors otherwise. We see increasing the subjective audit probability for low transactions is more efficient than increasing this probability for high transactions. Second, favoring social rewards for cooperators or alternative penalties for defectors can be effective policies, but their success depends on the distribution of the audit probability for low and high transactions.
volume 16 (2) 62-76