Document Type

Working Paper

Publication Date

2014

Center/Program

Center for Contract and Economic Organization

Abstract

From parking tickets to tax fines and punitive damages, legal sanctions matter in people’s lives. Yet neither the legal nor the economics literature offers a comprehensive treatment of sanctions. Their practical complexity is not well-understood and their theoretical analysis is fragmented. This essay prepared for an edited volume addresses both limitations. On the practical side, I highlight the complexity of sanctions using tax law as a primary example. The complexity exists because sanctions may (and do) vary along six different dimensions: aggressiveness, magnitude, culpability, effort to comply, likelihood of detection, and offense history. These six degrees of sanctions graduation are distinct, potentially independent, but often intertwined in obscure and perplexing ways. On the theoretical side, I review the economics literature in search of the reasons underlying each degree (or axis) of graduation. I conclude that three graduation axes of great practical significance — aggressiveness, culpability, and offense history — are the least developed theoretically. Two other dimensions — the likelihood of detection and the effort to comply with the law — are more conceptually advanced, although the theory is still fairly removed from the enforcement realities. In contrast, economic analysis reveals a good grasp of the magnitude axis and a clear path to modeling the real-life features that have remained overlooked thus far. By highlighting the complexity of sanctioning regimes and emphasizing the related theoretical successes and shortcomings, this essay identifies fruitful areas of future research, some of which I pursue in related work.

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