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Tax Compliance Policy Reconsidered


  • Bruno S. Frey

    (Institute for Empirical Economic Research, University of Z³rich, Z³rich, Switzerland)

  • Manfred J. Holler

    (Institute of Economics, University of Hamburg, Hamburg, Germany)


Strong empirical evidence suggests that, contrary to standard criminal choice theory, deterrence does not increase tax compliance. A model based on a peculiarity of the mixed-strategy Nash equilibrium in 2-by-2 games is used to explain this observation theoretically: The strategy choice of a player is not affected by the changes in his or her payoffs induced by deterrence. Moreover, as empirical observations show that increased deterrence tends to undermine tax morale under relevant conditions, it follows that tax policy should not so much try to deter but should make an effort to maintain and raise citizens' tax morale.

Suggested Citation

  • Bruno S. Frey & Manfred J. Holler, 1998. "Tax Compliance Policy Reconsidered," Homo Oeconomicus, Institute of SocioEconomics, vol. 15, pages 27-45.
  • Handle: RePEc:hom:homoec:v:15:y:1998:p:27-45

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    Cited by:

    1. Holler Manfred J., 2002. "Classical, Modern, and New Game Theory / Klassische, Moderne und Neue Spieltheorie," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 222(5), pages 556-583, October.
    2. Manfred J. Holler & Martin A. Leroch, 2014. "Theories of justice and empirical results," Chapters,in: A Handbook of Alternative Theories of Public Economics, chapter 6, pages 143-159 Edward Elgar Publishing.

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