Concentrated Enforcement

When enforcement resources are limited, how should the scarce enforcement resources be allocated to increase compliance with the law? The answer to this question can determine to what extent the law on the books translates to the law in practice. A dominant school of thought in the tax literature suggests that they should be allocated based on a “worst-first” method, whereby the individuals likely to be most noncompliant are targeted. However, while “worst-first” methods can encourage all individuals to increase compliance so as not to be deemed the “worst,” they can also provide cover to engage in noncompliance that is perceived moderate for the relevant population. This dynamic can become most problematic in highly noncompliant populations. In such populations, existing, high levels of noncompliance, and underlying, structural causes of the high noncompliance can serve as coordinating mechanisms, providing mutual assurance of low compliance. Moreover, “worst-first” theories do not provide a comprehensive explanation for the group and project-based enforcement practices that are found in a number of actual enforcement settings. In response to these deficits, this Article draws on work from across different disciplines to develop a new theory for the allocation of scarce tax enforcement resources. This Article suggests that, under certain conditions, deterrence can be enhanced by allocating scarce enforcement resources among a low-compliance population of taxpayers through a process called concentrated enforcement. After setting forth the theoretical case for concentrated enforcement, this Article examines how it might apply in the cash business tax sector, a highly noncompliant sector that presents particular challenges for “worst-first” methods. This Article concludes that concentrated enforcement may increase compliance, meriting its application and empirical evaluation

Concentrated Enforcement

When enforcement resources are limited, how should the scarce enforcement resources be allocated to increase compliance with the law? The answer to this question can determine to what extent the law on the books translates to the law in practice. A dominant school of thought in the tax literature suggests that they should be allocated based on a worst-first method, whereby the individuals likely to be most noncompliant are targeted. However, while worst-first methods can encourage all individuals to increase compliance so as not to be deemed the worst, they can also provide cover to engage in noncompliance that is perceived moderate for the relevant population. This dynamic can become most problematic in highly noncompliant populations. In such populations, existing, high levels of noncompliance, and underlying, structural causes of the high noncompliance can serve as coordinating mechanisms, providing mutual assurance of low compliance. Moreover, worst-first theories do not provide a comprehensive explanation for the group and project-based enforcement practices that are found in a number of actual enforcement settings. In response to these deficits, this Article draws on work from across different disciplines to develop a new theory for the allocation of scarce tax enforcement resources. This Article suggests that, under certain conditions, deterrence can be enhanced by allocating scarce enforcement resources among a low-compliance population of taxpayers through a process called concentrated enforcement. After setting forth the theoretical case for concentrated enforcement, this Article examines how it might apply in the cash business tax sector, a highly noncompliant sector that presents particular challenges for worst-first methods. This Article concludes that concentrated enforcement may increase compliance, meriting its application and empirical evaluation