Deterring economic crimes: The case of tax evasion

Abstract

Criminal justice policies and measures for reform almost invariably include some aspect of deterrence-based models in their attempt to control crime. It is believed that making the costs of offences more onerous than the derived benefits will inhibit individuals from committing crimes. This study explores the utility of deterrence theory for criminal justice by examining it in the context of tax evasion. Tax evasion is useful in examining deterrence since it occurs in a setting in which the conditions for deterrence are most likely to. exist. In this study, Canadian survey data were examined to gain an understanding of the effect of criminal justice sanctions on tax evasion. Findings suggest that perceived penalties are not as important to decisions about evading tax as are perceptions of the possibility of being apprehended. Some implications of this finding are that strategies of deterrence based upon penalty size may be in effective if individuals contemplating tax evasion do not think they will be caught. This study raises questions about the adequacy of compliance strategies based upon the severity of sanctions, and discusses regulatory measures that lie outside of the criminal justice system which may hold more promise.