Herbert Walther

Rewards Versus Penalties: on a New Policy against Tax Evasion

The theoretical analysis of tax evasion has typically concentrated on the role of Abstract penalties and on the probability of being investigated and penalized. This article introduces into the standard model of tax evasion the possibility of pecuniary rewards as an economic incentive for taxpaying. The analysis shows that introducing a reward for payment of taxes leads to a welfare improvement over non-prohibitive penalty regimes. An optimal penalty-reward mix is derived that guarantees a certain tax yield for the government and, at the same time, maximizes the taxpayers utility.

Normal-randomness expected utility, time preference and emotional distortions

Abstract A simple non-expected utility model, “normal-randomness expected utility” (NREU), is formulated. In addition to permanent wealth effects captured by expected utility, individuals anticipate temporary emotional reactions to the resolution of uncertainty in the form of elation and disappointment. Therefore, time preference plays an important part in determining risk attitudes. A higher rate of time preference and emotional sensitivity induces distortions similar, but not identical to, rank-dependent expected utility (RDEU). A specific reaction pattern is postulated by the “NREU” model, in which individuals react more heavily to events falling outside of expected “normal” deviations. This pattern induces S-shaped transformation of probability weights.

Separating Small and Big Fish: The Case of Income Tax Evasion

This paper proposes to offer the taxpayer a choice of tax-enforcement schemes for self-selection. More specifically, the taxpayer should have the possibility of opting for the prevailing regime with a certain penalty on the evaded tax or for an alternative regime with a higher penalty on the evaded tax but a reduced tax rate. It is shown that this leads to a separation of taxpayers characterized by a relatively high degree of evasion (H-evaders) from taxpayers who evade only a relatively small amount of tax (L-evaders). Furthermore, the procedure is not self-defeating, it is effectively possible to direct the efforts of auditing towards the H-evaders. At the end of the game the L-evaders experience a welfare gain, the H-evaders are induced to reduce their evasion activities and the government can expect higher yields.

Marktstruktur und Preisverhalten in der österreichischen Industrie

SummaryBeing part of a larger investigation concerning forms and intensity of competition in the Austrian economy this paper deals with the characteristics of market structure and pricing behaviour in the industrial sector. Mainly based on a detailed questionnaire this study is representative for the group of larger Austrian industrial enterprises (sales of more than 100 Mill. AS) which produced more than two thirds of total industrial ouput. According to this study the dominant market structure of the Austrian industry is that of a close oligopoly. The subjective estimation of the price elasticity of demand by the firms participating in our survey was generally very pessimistic, being the lower the larger the market share of the respective firm.The most common principle of price formation for new products in the Austrian industry is a system of flexible full cost pricing, meaning cost orientation plus variable profit margins. Our study also shows that a large majority (60% resp. 80%) of the enterprises under investgation use discount, i.e. price differentiation in their pricing policies. These aspects indicate that-in line with “marginalistic theories” — demand situations obviously exercise a substantial influence on pricing behaviour. Considering the causes for price changes, however, cost oriented influences were clearly dominating. This stresses the great importance of the Austrian pricecontrol mechanism, the “Paritätische Kommission”, the institutionalized form of incomes policy in Austria.An econometric analysis of the process of price formation in the Austrian industry showed that the main factors of price changes were changes in labour costs and in international price levels, especially in the level of export prices. Our investigation also dealt with the question, whether differences in market-structure result in different, responses to demand fluctuations. Considering both the concepts of actual and “potential” competition it can be shown that enerprises in a more competitive situation react towards changes in demand conditions in a more “stabilizing way” that monopolistic firms: The reduce prices earlier in recession and they react to boom periods by expanding their capacities rather than by raising prices. Market structure and the intensity of competition thus seem to influence the position of the “Phillips-curve” in an economy.