Encyclopedia of Law and Economics

2019 Edition
| Editors: Alain Marciano, Giovanni Battista Ramello


  • Jacob NussimEmail author
Reference work entry
DOI: https://doi.org/10.1007/978-1-4614-7753-2_77


The term “Avoidance” avoids clear definition in the academic literature. It generally describes illegitimate reactions to legal rules that wholly or partially thwart their legal effect. Self-interested, utility-maximizing individuals are obviously expected to try avoiding legal restrictions and limitations to their behavior. Indeed, examples of avoidance in reality are abundant. Research on avoidance was initiated by the economics of crimes literature in the 1970’s and developed since in two additional spinoffs of that literature – environmental economics and economics of tax evasion. These developments are organized and reviewed here. The focus is on the relationship between avoidance and deterrence.

This is a preview of subscription content, log in to check access.


  1. Allingham MG, Sandmo A (1972) Income tax evasion: a theoretical analysis. J Public Econ 1(6):323–338CrossRefGoogle Scholar
  2. Alm J, Jackson BR, McKee M (1992) Estimating the determinants of taxpayer compliance with experimental data. Natl Tax J 45:107–114Google Scholar
  3. Alm J, Bahl R, Murray MN (1993) Audit selection and income tax underreporting in the tax compliance game. J Dev Econ 42(1):1–33CrossRefGoogle Scholar
  4. Andreoni J, Erard B, Feinstein J (1998) Tax compliance. J Econ Lit 36:818–860Google Scholar
  5. Baldry JC (1987) Income tax evasion and the tax schedule: some experimental results. Public Finance 42(3): 357–383Google Scholar
  6. Bankman J (2000) The economic substance doctrine. Calif Law Rev 74:5, 13Google Scholar
  7. Baumann F, Friehe T (2013) Regulating harmless activity to fight crime. J Econ 113(1):1–17CrossRefGoogle Scholar
  8. Bebchuk LA, Kaplow L (1993) Optimal sanctions and differences in individuals likelihood of avoiding detection. Int Rev Law Econ 13:217–224CrossRefGoogle Scholar
  9. Beccaria C (1764) On crimes and punishments. In: Manzoni A (ed) The column of infamy prefaced by Cesare Beccaria’s of crimes and punishments (trans: H. Paolucci, 1963). Prentice Hall, Oxford University Press, 1963Google Scholar
  10. Becker GS (1968) Crime and punishment: an economic approach. J Polit Econ 76:169–217CrossRefGoogle Scholar
  11. Bentham J (1789/1948) An introduction to the principles of morals and legislation (JH Burns, HLA Hart eds., 1970). (Oxford: Blackwell, 1948 ed.), Athlone Press, pp 158–159Google Scholar
  12. Besley T (2004) Principled agents? Motivation and incentives in government. The Lindahl Lectures (Oxford University Press, 2005)Google Scholar
  13. Boadway R, Sato M (2000) The optimality of punishing only the innocent. Int Tax Public Financ 7:641–664CrossRefGoogle Scholar
  14. Border KC, Sobel J (1987) Samurai accountant: a theory of auditing and plunder. Rev Econ Stud 54(4):525–540CrossRefGoogle Scholar
  15. Buchanan JM, Tullock G (1975) Polluters’ profits and political response: direct controls versus taxes. Am Econ Rev 65:139–147Google Scholar
  16. Chalfin A, McCrary J (2017) Criminal deterrence: a review of the literature. J Econ Lit 55(1):5–48CrossRefGoogle Scholar
  17. Chander P, Wilde LL (1998) A general characterization of optimal income tax enforcement. Rev Econ Stud 65:165–183CrossRefGoogle Scholar
  18. Chase CR (2003) To shred or not to shred: document retention policies and federal obstruction of justice statutes. Fordham J Corp Financ Law 8:721Google Scholar
  19. Christian CW (1994) Voluntary compliance with the individual income tax: results from the 1988 TCMP study. In: The IRS Research Bulletin, 1993/1994, Publication 1500 (Rev. 9–94). Internal Revenue Service, Washington, DC, pp 35–42Google Scholar
  20. Clotfelter CT (1983) Tax evasion and tax rates: an analysis of individual returns. Rev Econ Stat 65(3):363–373CrossRefGoogle Scholar
  21. Cowell FA (1981) Taxation and labour supply with risky activities. Economica 48(192):365–379CrossRefGoogle Scholar
  22. Cowell FA (1990a) Tax sheltering and the cost of evasion. Oxf Econ Pap 42:231–243CrossRefGoogle Scholar
  23. Cowell FA (1990b) Cheating The Government: The Economics of EvasionGoogle Scholar
  24. Cremer H, Gahvari F (1993) Tax evasion and optimal commodity taxation. J Public Econ 50(2):261–275CrossRefGoogle Scholar
  25. Cremer H, Gahvari F (1994) Tax evasion, concealment and the optimal linear income tax. Scand J Econ 96(2): 219–239CrossRefGoogle Scholar
  26. Cremer H, Gahvari F (1996) Tax evasion and the optimum general income tax. J Polit Econ 60(2):235–249CrossRefGoogle Scholar
  27. Cross RB, Shaw GK (1981) The evasion-avoidance choice: a suggested approach. Natl Tax J 34:489–491Google Scholar
  28. Downing PB, Watson WD Jr (1974) The economics of enforcing air pollution controls. J Environ Econ Manag 1(3):219–236CrossRefGoogle Scholar
  29. Ehrlich I (1972) The deterrent effect of criminal law enforcement. J Leg Stud 1:259–276CrossRefGoogle Scholar
  30. Ehrlich I (1973) Participation in illegitimate activities: a theoretical and empirical investigation. J Polit Econ 81:521–565CrossRefGoogle Scholar
  31. Ehrlich I (1975) On the relation between education and crime. In: Juster FT (ed) Education, income and human behavior. McGraw-Hill, New York, pp 313–337Google Scholar
  32. Ehrlich I, Becker GS (1972) Market insurance, self-insurance, and self-protection. J Polit Econ 80(4):623–648CrossRefGoogle Scholar
  33. Farrell J (1986) Voluntary disclosure: robustness of the unraveling result, and comments on its importance. In: Grieson RE (ed) Antitrust and regulation. Lexington Books, Lexington, pp 91–103Google Scholar
  34. Feinstein JS (1991) An econometric analysis of income tax evasion and its detection. Rand J Econ 22(1):14–35CrossRefGoogle Scholar
  35. Feldman NE, Slemrod J (2007) Estimating tax noncompliance with evidence from unaudited tax returns. Econ J 117(518):327–352CrossRefGoogle Scholar
  36. Friedland N, Maital S, Rutenberg A (1978) A simulation study of income tax evasion. J Public Econ 10(1): 107–116CrossRefGoogle Scholar
  37. Friehe T (2009) Precaution v. avoidance: a comparison of liability rules. Econ Lett 105:214–216CrossRefGoogle Scholar
  38. Friehe T (2010) On avoidance activities after accidents. Rev Law Econ 6:3CrossRefGoogle Scholar
  39. Friehe T (2011) A note on the deterrence effects of the forfeiture of illegal gains. Rev Law Econ 7(1):118–124CrossRefGoogle Scholar
  40. Garvie D, Keeler A (1994) Incomplete enforcement with endogenous regulatory choice. J Public Econ 55(1):141–162CrossRefGoogle Scholar
  41. Grady MF (1983) A new positive economic theory of negligence. Yale Law J 92:799–829CrossRefGoogle Scholar
  42. Grossman GM, Helpman E (2001) Special interest politics. MIT Press, Cambridge, MAGoogle Scholar
  43. Gunn A (1978) Tax avoidance. Mich Law Rev 76:733–767CrossRefGoogle Scholar
  44. Harford JD (1978) Firm behavior under imperfectly enforceable pollution standards and taxes. J Environ Econ Manag 5:26–43CrossRefGoogle Scholar
  45. Harford JD (1987) Self-reporting of pollution and the firms behavior under imperfectly enforceable regulations. J Environ Econ Manag 14(3):293–303CrossRefGoogle Scholar
  46. Heyes AG (1994) Environmental enforcement when ‘inspectability’ is endogenous: a model with overshooting properties. Environ Resour Econ 4(5):479–494CrossRefGoogle Scholar
  47. Huang C-H (1996) Effectiveness of environmental regulations under imperfect enforcement and the firm’s avoidance behavior. Environ Resour Econ 8(2):183–204CrossRefGoogle Scholar
  48. Innes R (1999) Remediation and self-reporting in optimal law enforcement. J Public Econ 72:379–393CrossRefGoogle Scholar
  49. Innes R (2000) Self-reporting in optimal law enforcement when violators have heterogeneous probabilities of apprehension. J Leg Stud XXIX:287–300CrossRefGoogle Scholar
  50. Innes R (2001) Violator avoidance activities and self-reporting in optimal law enforcement. J Law Econ Org 17:239–256CrossRefGoogle Scholar
  51. Isenbergh J (1982) Musings on form and substance in taxation. Univ Chic Law Rev 49:859–884CrossRefGoogle Scholar
  52. Jones CA (1989) Standard setting with incomplete enforcement revisited. J Policy Anal Manage 8:72–87CrossRefGoogle Scholar
  53. Joulfaian D, Rider M (1996) Tax evasion in the presence of negative income tax rates. Natl Tax J 49(4):553–570Google Scholar
  54. Kahan M (1989) Causation and incentives to take care under the negligence rule. J Leg Stud 18:427–447CrossRefGoogle Scholar
  55. Kaplow L (1990) Optimal taxation with costly enforcement and evasion. J Public Econ 43(2):221–236CrossRefGoogle Scholar
  56. Kaplow L, Shavell S (1994) Optimal law enforcement with selfreporting of behavior. J Polit Econ 102(3):583–605CrossRefGoogle Scholar
  57. Khambu J (1989) Regulatory standards, compliance and enforcement. J Regul Econ 1(2):103–114CrossRefGoogle Scholar
  58. Khambu J (1990) Direct controls and incentives systems of regulation. J Environ Econ Manag 18(2):72–85CrossRefGoogle Scholar
  59. Kolm A-S, Larsen B (2004) Does tax evasion affect unemployment and educational choice? SSRN papersGoogle Scholar
  60. Kronman A (1978) Mistake, disclosure, information, and the law of contracts. J Leg Stud 7(1):1–34CrossRefGoogle Scholar
  61. Langlais E (2008) Detection avoidance and deterrence: some paradoxical arithmetic. J Public Econ Theory 10:371–382CrossRefGoogle Scholar
  62. Langlais E (2009) On the ambiguous effects of repression. Ann Econ Stat 93/94:349–361Google Scholar
  63. Lee DR (1984) Monitoring and budget maximisation in pollution control. Econ Inq 18:565–575Google Scholar
  64. Linder SH, McBride ME (1984) Enforcement costs and regulatory reform: the agency and firm response. J Environ Econ Manag 11(2):327–346CrossRefGoogle Scholar
  65. Malik AS (1990) Avoidance, screening and regulatory enforcement. Rand J Econ 21(3):341–353CrossRefGoogle Scholar
  66. Malik AS (1993) Self-reporting and the design of policies for regulating stochastic pollution. J Environ Econ Manag 24:241–257CrossRefGoogle Scholar
  67. Mayshar J (1991) Taxation with costly administration, The Scandinavian Journal of Economics 93:75–88CrossRefGoogle Scholar
  68. Nagin DS (2013) Deterrence: a review of the evidence by a criminologist for economists. Annu Rev Econ 5(1): 83–105CrossRefGoogle Scholar
  69. Neck R, Wachter JU, Schneider F (2012) Tax avoidance versus tax evasion: on some determinants of the shadow economy. Int Tax Public Financ 19(1):104–117CrossRefGoogle Scholar
  70. Nowell C, Shogren JF (1994) Challenging the enforcement of environmental regulation. J Regul Econ 6:265–282CrossRefGoogle Scholar
  71. Nussim J, Tabbach AD (2005) Avoidance and deterrence, (October 20, 2005). Available at SSRN: http://ssrn.com/abstract=927216
  72. Nussim J, Tabbach A (2008a) Controlling avoidance: ex-ante regulation v. ex-post punishment. Rev Law Econ 4:Article 4Google Scholar
  73. Nussim J, Tabbach A (2008b) (Non)regulable avoidance and the perils of punishment. Eur J Law Econ 25: 191–208CrossRefGoogle Scholar
  74. Nussim J, Tabbach A (2009) Deterrence and avoidance. Int Rev Law Econ 29:314–323CrossRefGoogle Scholar
  75. Parker SC (2003) Does tax evasion affect occupational choice? Oxf Bull Econ Stat 65:379–394CrossRefGoogle Scholar
  76. Pencavel JH (1979) A note on income tax evasion, labor supply, and nonlinear tax schedules. J Public Econ 12(1):115–124CrossRefGoogle Scholar
  77. Persson T, Tabellini G (2000) Political economics: explaining economic policy. MIT Press, CambridgeGoogle Scholar
  78. Pestieau P, Possen UM (1991) Tax evasion and occupational choice. J Public Econ 45(1):107–125CrossRefGoogle Scholar
  79. Piketty T, Saez E (2013) Optimal labor income taxation. In: Handbook of public economics, vol 5. (Elsevier) pp 391–474Google Scholar
  80. Polinsky AM, Shavell S (1979) The optimal tradeoff between the probability and magnitude of fines. Am Econ Rev 69:880–891Google Scholar
  81. Polinsky AM, Shavell S (2007) The theory of public enforcement of law. In: Handbook of law and economics, vol 1. (Elsevier), pp 403–454Google Scholar
  82. Reinganum JF, Wilde LL (1985) Income tax compliance in a principal–agent framework. J Public Econ 26(1):1–18CrossRefGoogle Scholar
  83. Reinganum JF, Wilde LL (1986) Equilibrium verification and reporting policies in a model of tax compliance. Int Econ Rev 27(3):739–760CrossRefGoogle Scholar
  84. Sanchirico CW (2006) Detection avoidance. N Y Univ Law Rev 81:1331–1399Google Scholar
  85. Sanchirico CW (2012) Detection avoidance and enforcement theory. Proced Law Econ 8:145Google Scholar
  86. Sandmo A (1981) Income tax evasion, labor supply and the equity-efficiency tradeoff. J Public Econ 16:265–288CrossRefGoogle Scholar
  87. Sandmo A (2005) The theory of tax evasion: a retrospective view. Natl Tax J 58:643–663CrossRefGoogle Scholar
  88. Schmidt P, Witte AD (1984) An economic analysis of crime and justice. Academic, Orlando, pp 142–216CrossRefGoogle Scholar
  89. Shaffer S (1990) Regulatory compliance with non-linear penalties. J Regul Econ 2(1):99–103CrossRefGoogle Scholar
  90. Shavell S (2011) Corrective taxation versus liability as a solution to the problem of harmful externalities. J Law Econ 54(4):S249–S266CrossRefGoogle Scholar
  91. Slemrod J (1994) Fixing the leak in Okun’s bucket: optimal tax progressivity when avoidance can be controlled. J Public Econ 55(1):41–51CrossRefGoogle Scholar
  92. Slemrod J (2001) A general model of the behavioral response to taxation, International Tax and Public Finance 8:119–128CrossRefGoogle Scholar
  93. Slemrod J, Yitzhaki S (1987) The optimal size of a tax collection agency. Scand J Econ 89(2):183–192CrossRefGoogle Scholar
  94. Slemrod J, Yitzhaki S (2002) Tax avoidance, evasion, and administration. In: Handbook of public economics, vol 3. (Elsevier), pp 1423–1470Google Scholar
  95. Srinivasan TN (1973) Tax evasion: a model. J Public Econ 2:339–346CrossRefGoogle Scholar
  96. Stanley TJ (1995a) Radar detectors, fixed and variable costs of crime. Unpublished working paperGoogle Scholar
  97. Stanley TJ (1995b) Optimal penalties for concealment of crime. Unpublished working paperGoogle Scholar
  98. Stigler GJ (1970) The optimum enforcement of laws. J Polit Econ 78:526–536CrossRefGoogle Scholar
  99. Stigler GJ (1971) The theory of economic regulation. Bell J Econ Manag Sci 2:3–21CrossRefGoogle Scholar
  100. Tabbach A (2009) The social desirability of punishment avoidance. J Law Econ Org 26:265–289CrossRefGoogle Scholar
  101. Usher D (1986) Tax evasion and the marginal cost of public funds. Econ Inq 24:563–586CrossRefGoogle Scholar
  102. Viscusi WK, Zeckhauser R (1979) Optimal standards with incomplete enforcement. Public Policy 27:437–456Google Scholar
  103. Weisbach DA (2002) An economic analysis of anti-tax-avoidance doctrines. Am Law Econ Rev 4(1):88–115CrossRefGoogle Scholar
  104. Weiss L (1976) The desirability of cheating incentives and randomness in the optimal in-come tax. J Polit Econ 84(6):1343–1352CrossRefGoogle Scholar
  105. Yitzhaki S (1974) A note on ‘income tax evasion: a theoretical analysis’. J Public Econ 3(2):201–202CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Faculty of LawBar-Ilan UniversityRamat-GanIsrael