If tax rates remain high and the probability of detection low, grey activities will continue to have irresistible appeal.

ECONOMIST: The informal economy is neither small nor benign

Economists such as Mitchell Polinsky, of Stanford Law School, and Steven Shavell, of Harvard Law School, argue that to deter harmful conduct, punitive damages should be equivalent to the amount of harm caused, multiplied by the inverse of the probability of detection.

ECONOMIST: Punitive damages

Anything lower reduces the expected cost of criminality, without doing anything to improve the probability of detection. (Treating whistleblowers leniently is consistent with this logic: letting them off punishment raises the odds of truth-telling, and therefore of detection.) There are plenty of arguments against ultra-high fines, however.

ECONOMIST: Free exchange

Many non-filers ignorantly analyze optional strategies given the probability of audit and detection and the extent of penalties, if discovered.

FORBES: Non-Filers Beware: Who's That Knocking at Your Door ?