Tax Fraud and Selective Law Enforcement

Abstract

This article presents a new conceptual framework for research into tax fraud and law enforcement. Informed by research approaches from across tax law, public economics, criminology, criminal justice, economics of crime, and regulatory theory, it assesses the effectiveness, and the legitimacy, of current approaches to combating tax fraud, bringing new dimensions to previously identified trends in crime control. It argues that, whilst the last decade has witnessed a significant intensification of measures that purportedly target tax fraud, preference has been consistently given to enforcement measures that maximize revenue gains rather than combat the fraud itself, even where the effect is to aggravate the non‐revenue costs of tax fraud. These developments demonstrate a significant shift from tax fraud suppression to tax fraud management. The article concludes that this shift not only undermines tax equity and overall tax compliance, but also leads to selective tax enforcement, thus representing a significant risk to the rule of law.

Outgroup Bias and the Unacceptability of Tax Fraud

“…One might assume that public tolerance for tax fraud is higher than for other crimes (Kaplan and Reckers 1985) since it leads to fewer social and legal consequences (Alldridge 2017;De La Feria 2020). Given the strength of prejudice on other areas of public finance (e.g., welfare), one might expect outgroup biases to also shape attitudes related to tax fraud, which should be frowned upon when perpetrated by the minorities but tolerated among members of the majority group.…”

Outgroup Bias and the Unacceptability of Tax Fraud

“…One might assume that public tolerance for tax fraud is higher than for other crimes (Kaplan and Reckers, 1985) since it leads to fewer social and legal consequences (Alldridge, 2017; De La Feria, 2020). Given the strength of prejudice on other areas of public finance (e.g.…”

Governing through non‐enforcement: Regulatory forbearance as industrial policy in advanced economies

“…Non‐enforcement has also been identified as a mechanism for dealing with crime‐related phenomena and the management of complex social constellations (Buxton 2006; Houborg et al . 2014; de la Feria 2020; Schmoll 2020). Commonly focused on street‐level bureaucrats, this body of research builds on the assumption—very much present in studies on law enforcement in general—that governments are willing to enforce the law, even if they fail to do so.…”

“…Selective tax non‐enforcement jeopardizes compliance and reduces the effective tax rates by facilitating tax evasion (Genschel & Schwarz 2011, p. 352). Tax evasion by some distorts market competition and undermines the principle of “horizontal tax equity” according to which taxpayers in similar circumstances should bear similar tax burdens (de la Feria 2020, p. 11). Less tax disbursements to the state lower the relative input costs, which the non‐compliant producers face vis‐à‐vis the compliant ones.…”