Progressive Fines and Tax Evasion


Modern tax systems rely on the self-declaration of tax liabilities for the collection of revenues and compliance is fostered by audits that raise the expected costs of under-declaration. While most real-world deterrence systems adopt progressive penalties where the punishment increases more than proportionally than the offence, research has mostly neglected this topic. In this work, we study the role of fine structure in deterrence by experimentally testing its impact on the declarations of individuals and total revenues collected. As predicted by our theoretical model we show that i) a linear fine leads to more extreme declaration behaviours (truthful declaration/total evasion) than a progressive one imposing the same expected burden on evaders, ii) there is no statistically significant difference between the average revenues collected through self-declaration in the two penalty regimes, while iii) under the progressive penalty regime, average revenues from fines and average total revenues are significantly higher (47% and 10% respectively).

Burgundy School of Business, University of Bourgogne Franche-Comte
Dijon, France