Progressive fines and deterrence

2010-06-10

in Economics, Law, Politics

Here is a question to ponder:

The idea behind fines is mostly to deter unwanted behaviour: ranging from graffiti to oil spills. In this sense, they are distinct from compensation payments, which are intended primarily to restore the victim of an inappropriate act to some semblance of their former state.

Given that the aim of fines is to deter, it seems that their size should be calibrated so as to have a comparable effect on all people. The effect of a $50 fine on someone earning $25,000 a year is different from the effect on someone earning $75,000 a year.

The question then is whether it is appropriate to index fines to some measure of a person’s monetary status? If so, is it more fair to base the level on income or on wealth? Each could produce injustices. In addition, should there be bounded maximums and minimums for fines, even after monetary considerations are taken into account? Also, should there be any distinction between fines levied on individuals, when compared with organizations?

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{ 11 comments… read them below or add one }

XUP June 11, 2010 at 9:12 am

I don’t think fines are a very effective method of modifying behaviour because: you first have to catch someone in an infraction and prove their infraction before being able to fine them; and because as you say fines can be negligable compared to the wealth of the individual or company and risking the fine is often worth not modifying the behaviour (e.g.: many people are willing to risk the chance of a parking ticket instead of driving around looking for another spot or paying for a paid lot); and because you will never be able to effectively punish everyone or even most of the individuals engaging in the unwanted behaviour. I think a reward method would be much more effective.

Milan June 11, 2010 at 11:52 am

Aren’t rewards just a more expensive and administratively difficult way to produce the same effect?

You can fine oil companies that produce a spill of X size, or pay all oil companies that do not produce such a spill. Either way, the financial result is similar (though with more of a wealth transfer from taxpayers to oil firms in the second case).

R.K. June 11, 2010 at 4:35 pm

Progressive fines based on income could make sense, especially for individuals and offences like speeding. Instead of giving everybody a fine of $100, it might be more fair and effective to fine everybody one day’s pay.

A minimum fine also makes sense. Even those with zero income should face some punishment for breaking the law.

R.K. June 11, 2010 at 4:36 pm

Also, making fine sizes contingent on income makes them a bit more equivalent to prison – people get sentences of the same length, regardless of whether they spend their days making high-level corporate decisions or sitting in a basement eating Doritos and playing with their Wii.

Byron Smith June 12, 2010 at 7:41 pm

As I understand it, some Scandinavian countries have a system somewhat like this (fines proportional to income).

oleh June 13, 2010 at 12:36 pm

Progressive fines. Interesting idea. Perhaps it makes sense in some areas.

Two challenges for the idea of progressive fines are:
1. increased difficulty of administration
2. expected backlash that it would be unfair.

Milan June 13, 2010 at 12:54 pm

I think the second objection could be pretty easily countered by setting the fines as a certain number of days worth of pay. While the monetary amount would vary, there is still an intuitive basis for saying that people face the same penalty.

Byron Smith June 13, 2010 at 3:35 pm

Defining someone’s income is not always simple. Gross income? Taxable income?

Milan June 13, 2010 at 7:56 pm

Taxable income would probably be more fair, in countries with progressive income taxes. That said, gross income would probably be easier and cheaper to administer.

Perhaps every time people file taxes, they could be assigned a fine multiplier based on how much they earn per eight hours of work, relative to workers in general. If the average Canadian earns about $19 an hour, someone earning $60 per hour could have their fines tripled, while someone earning $9 could have them halved.

This is probably still to the advantage of those earning $60 per hour, since the basic costs of living are pretty much fixed at a low level. As a consequence, they almost inevitably have more disposable income than poorer people.

Byron Smith June 14, 2010 at 6:58 am

Yes, though if we go with taxable income it would only compound the problem of tax avoidance. Some very rich people manage to exploit loopholes to achieve very low or even negative taxable incomes. But I don’t think this is necessarily a fatal flaw (just as it isn’t a fatal flaw in tax regimes that allow tax deductions).

R.K. June 16, 2010 at 12:20 am

I wonder if there could be any clever trick for getting around that.

One neat trick I have heard about keeps people from lying about the value of their houses on their property taxes. Supposedly, some government tax agencies maintain the option of buying your property for whatever price you list as the value of your home. It’s not something they actually do, of course, except in cases where people blatantly mis-state the value. Even then, I think they give you the chance to re-file.

Can you think of any similar way to assess what a day of someone’s time is really worth?

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