Two terms, "active deterrence" and "passive deterrence", are introduced to describe methods that tax authorities could implement in an attempt to reduce income tax evasion. Active deterrence refers to methods that create fear and discourage noncompliance. For example, since reputation may not be important for success in a particular occupation, targeting a specific occupation category (e.g. non-manager/non-professional) with a higher probability of an audit, may reduce tax evasion. In contrast, passive deterrence refers to methods that create comfort and encourage compliance. Here, the hypothesis is that simplifying the tax system increases taxpayers' perceptions of fairness, which reduce tax evasion. Empirical tests are proposed to analyze whether these examples of both active and passive deterrence may be effective methods to increase taxpayer compliance.
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