Graduated penalty scheme

Abstract

Evaders of any dues such as local council tax, motor vehicle tax, tv license fees, etc., if detected, can pay promptly the dues plus any fine or postpone, which usually means a larger fine, and potentially imprisonment if payments are not made in full. Dominant among the likely reasons for this graduated penalty scheme are ‘default tracking costs’ and ‘imprisonment costs’. Although in conflict with the state’s basic objective of deterring evasion, a graduated penalty scheme may emerge as an optimal balance between the dual objectives of deterrence and settlement delay minimization. Based on a welfare-maximizing objective where the state determines optimal monitoring intensity and time profile of fines, an intuitively plausible condition is derived such that the fine scheme is of the graduated type.