A decomposition algorithm for computing income taxes with pass-through entities and its application to the Chilean case

DOI10.1007/S10479-017-2707-9zbMATH Open1439.91031arXiv1611.05690OpenAlexW2549316481WikidataQ57707441 ScholiaQ57707441MaRDI QIDQ2178362FDOQ2178362

Eduardo Moreno, Javiera Barrera, Sebastián Varas K.

Publication date: 11 May 2020

Published in: Annals of Operations Research (Search for Journal in Brave)

Abstract: Income tax systems with pass-through entities transfer a firm's incomes to the shareholders, which are taxed individually. In 2014, a Chilean tax reform introduced this type of entity and changed to an accrual basis that distributes incomes (but not losses) to shareholders. A crucial step for the Chilean taxation authority is to compute the final income of each individual, given the complex network of corporations and companies, usually including cycles between them. In this paper, we show the mathematical conceptualization and the solution to the problem, proving that there is only one way to distribute incomes to taxpayers. Using the theory of absorbing Markov chains, we define a mathematical model for computing the taxable incomes of each taxpayer, and we propose a decomposition algorithm for this problem. This allows us to compute the solution accurately and with the efficient use of computational resources. Finally, we present some characteristics of the Chilean taxpayers' network and computational results of the algorithm using this network.

Full work available at URL: https://arxiv.org/abs/1611.05690

Recommendations

• scientific article; zbMATH DE number 3936887
• Personal income tax reforms: a genetic algorithm approach
• On some results in analysis and optimization of Markov networks with incomes and their applications
• Setting and solution of a certain tax-problem programming: A comparative analysis
• A network model and algorithm for the analysis and estimation of financial flow of funds

zbMATH Keywords

algorithmsnetworksMarkov processesincome taxes

Mathematics Subject Classification ID

Applications of continuous-time Markov processes on discrete state spaces (60J28) Macroeconomic theory (monetary models, models of taxation) (91B64)

Cites Work

• LAPACK Users' Guide
• Powers of tensors and fast matrix multiplication
• Depth-First Search and Linear Graph Algorithms
• Matrix multiplication via arithmetic progressions
• The probabilistic abacus
• The chip-firing game
• Chip-firing games on directed graphs
• A game theoretical analysis of the impact of income inequality and ethnic diversity on fiscal corruption
• Impact of taxation on international transfer pricing and offshoring decisions
• Optimal tax depreciation with uncertain future cash-flows
• Optimal scheduling of income tax prepayments under stochastic incomes
• Decision model and analysis for investment interest expense deduction and allocation
• Optimal tax depreciation with loss carry-forward and backward options
• The impact of US tax depreciation law on asset location and ownership decisions
• Tax evasion by risk-averse firms in Greece: a discrete Markov-based optimization model

Cited In (1)

• A semilinear system with positivity conditions

Uses Software

• LAPACK

This page was built for publication: A decomposition algorithm for computing income taxes with pass-through entities and its application to the Chilean case

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2178362)