Voluntary Disclosure of Evaded Taxes - Increasing Revenues, or Increasing Incentives to Evade?
Many countries apply lower fines to tax evading individuals when they voluntarily\ndisclose the tax evasion they committed. I model such voluntary disclosure mechanisms\ntheoretically and show that while such mechanisms increase the incentive to evade\ntaxes, they nevertheless increase tax revenues net of administrative costs. I then test the effects of voluntary disclosure in two separate empirical analyses. First, I confirm that voluntary disclosure mechanisms increase tax evasion, using the introduction of the 2009 offshore voluntary disclosure program in the U.S. for identification. Second, I quantify the tax revenues of voluntary disclosures by considering how some state-level governments in Germany bought whistle-blower data from foreign bank employees, thereby increasing the detection probability and the usage of voluntary disclosures.