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Rewards Versus Penalties: on a New Policy against Tax Evasion

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  • Josef Falkinger

    (Institut fur Volkswirtschaftslehre, Johannes-Kepler-Universitat Linz)

  • Herbert Walther

    (Institut für Wirtschaftstheorie und -politik, Wirtschaftsuniversitat Wien)

Abstract

The theoretical analysis of tax evasion has typically concentrated on the role of Abstract penalties and on the probability of being investigated and penalized. This article introduces into the standard model of tax evasion the possibility of pecuniary rewards as an economic incentive for taxpaying. The analysis shows that introducing a reward for payment of taxes leads to a welfare improvement over non-prohibitive penalty regimes. An optimal penalty-reward mix is derived that guarantees a certain tax yield for the government and, at the same time, maximizes the taxpayer's utility.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 19 (1991)
Issue (Month): 1 (January)
Pages: 67-79

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Handle: RePEc:sae:pubfin:v:19:y:1991:i:1:p:67-79

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Cited by:
  1. William F. Fox & Matthew Murray, 2013. "Taxing the Small: Fostering Tax Compliance Among Small Enterprises in Developing Countries," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1310, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Kastlunger, Barbara & Kirchler, Erich & Mittone, Luigi & Pitters, Julia, 2009. "Sequences of audits, tax compliance, and taxpaying strategies," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 405-418, June.
  3. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
  4. James, Simon & Edwards, Alison, 2010. "An annotated bibliography of tax compliance and tax compliance costs," MPRA Paper 26106, University Library of Munich, Germany.
  5. James, Simon & Alley, Clinton, 2002. "Tax compliance, self-assessment and tax administration," MPRA Paper 26906, University Library of Munich, Germany.
  6. Cécile Bazart & Michael Pickhardt, 2009. "Fighting Income Tax Evasion with Positive Rewards: Experimental Evidence," Working Papers 09-01, LAMETA, Universtiy of Montpellier, revised Jun 2009.
  7. Lars P. Feld & Bruno S. Frey, 2006. "Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation," IEW - Working Papers 287, Institute for Empirical Research in Economics - University of Zurich.
  8. Lars P. Feld & Bruno S. Frey, 2007. "Tax Evasion, Tax Amnesties and the Psychological Tax Contract," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0729, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  9. Dr Ken Devos, 2013. "Do Penalties And Enforcement Measures Make Taxpayers More Compliant? The View Of Australian Tax Evaders," Far East Journal of Psychology and Business, Far East Research Centre, vol. 12(1), pages 1-9, July.
  10. Park, Chang-Gyun & Hyun, Jin Kwon, 2003. "Examining the determinants of tax compliance by experimental data: a case of Korea," Journal of Policy Modeling, Elsevier, vol. 25(8), pages 673-684, November.

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