18/02/2008

On the Current German Tax Evasion Scandal

Some 900 rich Germans are currently under scrutiny from the authorities for having evaded taxes by hiding money in Liechtenstein bank accounts. Three points.

1. The tabloids love it: "Now the Rich Are Shivering" read the headline on the frontpage of Bild. But anyone who has ever evaded any taxes in any way (i.e., probably most adult Germans) is in no position to get on the moral high horse.

2. Having said that, I have a hard time understanding why someone who earns, say, 4 million Euros after taxes yearly would risk going to jail to bag another million. It just doesn't make any sense. Criminologists have a reasonable concept called stake in conformity. According to this view, the more people have to lose by being convicted, the less likely it is they will commit a crime - basically a very simple rational choice model. It wouldn't have predicted this. Note in this respect that systematic, large-scale tax evasion is not impulsive behaviour.

3. Authorities paid a source between four and five million Euros for this information (sources differ). German finance minister Peer Steinbr├╝ck, who sanctioned this, said that he was sure to recoup multiples of that amount, and he's probably right. But where does this lead? Psychologists have studied the crowding out of intrinsic motivation by incentives for more than 30 years, and the bottom line is that, yes, incentivizing behaviour reduces intrinsic motivation and may even lead to a reduction of that behaviour, both inside and outside of the laboratory. Next thing you know, people are going to call the police and say, "I've got information on an assault, it costs a hundred."

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