Using Game Theory to Analyze Strategic Tax Avoidance and Evasion Behaviors among Corporations and Individuals

Abstract

This study applies game theory to analyze strategic tax avoidance and evasion behaviors among corporations and individuals, emphasizing decision-making within regulated environments. Drawing on empirical data from tax compliance reports covering North America, Europe, Asia-Pacific, the Middle East, and Latin America between 2020 and 2024, the research employs a mixed-method approach. Quantitative models such as the Prisoner’s Dilemma and Nash Equilibrium are combined with regression, chi-square, and time-series analyses to evaluate compliance behavior and economic outcomes. Results show a strong negative correlation (-0.74) between tax evasion and economic growth, and a positive Pearson coefficient (0.75) linking corporate profitability with aggressive avoidance strategies. Compliance disparities are evident, with corporations achieving higher rates (68%) than individuals (54%), reflecting structured tax planning. Policy simulations indicate that every 1% increase in audit frequency raises compliance by 0.5%. These findings highlight the value of digital monitoring, international cooperation, and balanced deterrent-incentive mechanisms in mitigating tax avoidance and safeguarding revenue sustainability.