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Rewards Versus Penalties: on a New Policy against Tax Evasion


Falkinger, J; Walther, H (1991). Rewards Versus Penalties: on a New Policy against Tax Evasion. Public Finance Review, 19(1):67-79.

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.

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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Citations

16 citations in Web of Science®
20 citations in Scopus®
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Additional indexing

Item Type:Journal Article, not refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:January 1991
Deposited On:09 Oct 2013 12:40
Last Modified:07 Dec 2017 22:49
ISSN:1091-1421
Publisher DOI:https://doi.org/10.1177/109114219101900104

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