This paper analyzes how income taxation affects optimal law enforcement. A key insight of the analysis is that if monetary sanctions are deductible, income taxation is equivalent to increasing offenders' wealth. This implies, for example, that income taxation reduces the social costs of crime and law enforcement and generally increases the optimal level of deterrence. This paper also shows that if law enforcement is adjusted in response to income taxation, the tax treatment of monetary sanctions is irrelevant. Otherwise, disallowing (allowing) deductions for monetary sanctions is socially desirable if tax rates or tax rate increases are sufficiently low (high).
Criminal Law | Criminal Procedure | Tax Law
Date of this Version
Avraham D. Tabbach, "CRIME, PUNISHMENT, AND TAX" (December 2008). Tel Aviv University Law Faculty Papers. Working Paper 98.