Voluntary Disclosure of Evaded Taxes - Increasing Revenues, or Increasing Incentives to Evade?

Many countries apply lower fines to tax evading individuals when
they voluntarily disclose the tax evasion they committed. I model
such voluntary disclosure mechanisms theoretically and show that
while such mechanisms increase the incentive to evade taxes, 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.