Is the Severity of the Penalty an Effective Deterrent? A Strategic Approach for the Crime of Tax Evasion

19 Pages Posted: 10 Nov 2016

See all articles by Bruno Chiarini

Bruno Chiarini

University of Naples, Parthenope

Elisabetta Marzano

University of Naples Parthenope - Department of Economic Studies (DES)

Date Written: September 2016

Abstract

In order to analyze the severity of sentencing, and to show how the probabilistic interpretation of strategic behavior can be tricky, this paper uses the crime strategic model (inspection game) proposed by Tsebelis. This model shows that any attempts to increase the severity of punishment will alter the payoff of the individuals involved, leaving unchanged the frequency of violation at equilibrium. This result is misleading: payoffs are not independent and the crime game can not be simply read with mixed strategies. These are inconclusive on how the players act rationally. This is undeniably true for the crime of tax evasion, where the dishonest taxpayers are rational agents, motivated by the comparison of payoffs, considering the risk of breaking the law. Although an irreducible minimum of uncertainty remains, the Nash equilibrium in mixed strategies provides us with the necessary information on equilibria in pure strategies that will be played. In this context, tougher sentencing deters crime, although, as the Italian historical experience teaches, the necessary condition required is the certainty of punishment and the ability of the government to enforce it.

Note: RPS, processed - Sam 11/10/16

Keywords: Crime Game, Tax Evasion, Deterrence, Severity of Punishment

JEL Classification: C720, H260, K420

Suggested Citation

Chiarini, Bruno and Marzano, Elisabetta, Is the Severity of the Penalty an Effective Deterrent? A Strategic Approach for the Crime of Tax Evasion (September 2016). CESifo Working Paper Series No. 6112, Available at SSRN: https://ssrn.com/abstract=2867304

Bruno Chiarini

University of Naples, Parthenope ( email )

Via Generale Parisi 13
Napoli, 80133
Italy

Elisabetta Marzano (Contact Author)

University of Naples Parthenope - Department of Economic Studies (DES) ( email )

via Medina 40
Naples, 80133
Italy

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