Tax Compliance Policy Reconsidered

Bruno Frey and Manfred J. Holler
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Manfred J. Holler: Institute of Economics, University of Hamburg, Hamburg, Germany

Homo Oeconomicus, 1998, vol. 15, 27-45

Abstract: 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.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:hom:homoec:v:15:y:1998:p:27-45

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