An Overview: A New Era of Tax Enforcement - From 'Big Stick' to Responsive Regulation

Abstract

Recent developments in regulation and tax administration in Australia inspired this article on tax compliance and responsive regulation. The Article analyzes the economics of crime and compliance as the dominant approach to tax enforcement of the past three and a half decades. It evaluates the key advantages and disadvantages of the economic approach as well as its application to tax. The Article then explores responsive regulation as an alternative method that draws on the economic paradigm but also supplements this approach with other theories, particularly those involving identity, conflict escalation, and procedural justice. Building on this analysis and a case study of Australian investors in mass marketed tax schemes, the Article suggests that the broader, more balanced, and closely tailored method of regulating responsively may enable regulators to draw on the advantages of the economic model while alleviating some of its drawbacks. Responsive regulation may therefore constitute a superior method for regulating compliance.

Keywords: Responsive Regulation, Tax Enforcement, Tax Compliance, Taxpayer Behavior, Economic Analysis, Economic Modeling

JEL Classification: A11, A12, B20, B41, C70, D80, H00, K00, K34, K42