I should have elaborated more on my original post. I think creating a negative EV is a reasonable goal, but only under certain conditions.
> If the revenue office estimates that approximately 10% of tax fraud is caught, then the penalty for tax fraud should be at least 10x the amount of the fraud.
this, imo, is the exact situation that creates the game of hot potato. people stop making decisions based solely on EV when the variance gets too high. setting a huge penalty to create -EV may discourage the largest, most forward-looking institutions from engaging in the bad behavior (or at least directing it in a top-down fashion), but most companies and individuals with a shorter time horizon are just going to ignore it. and since everyone does it but almost no one gets caught, it creates an easy way to single out politically useful targets and throw the book at them.
rather than just increasing the penalty to gain ratio, I think it is more productive to ask why it is so hard to enforce these laws in the first place. tax law, for instance, can be so complicated that it is unclear to everyone involved (enforcement, accountants, defense counsel) whether a particular strategy is legal. when wrongdoing is difficult to understand, let alone prove, the government should simplify the laws, not make them more draconian. it wouldn't hurt to spend a little more on enforcement either.
> If the revenue office estimates that approximately 10% of tax fraud is caught, then the penalty for tax fraud should be at least 10x the amount of the fraud.
this, imo, is the exact situation that creates the game of hot potato. people stop making decisions based solely on EV when the variance gets too high. setting a huge penalty to create -EV may discourage the largest, most forward-looking institutions from engaging in the bad behavior (or at least directing it in a top-down fashion), but most companies and individuals with a shorter time horizon are just going to ignore it. and since everyone does it but almost no one gets caught, it creates an easy way to single out politically useful targets and throw the book at them.
rather than just increasing the penalty to gain ratio, I think it is more productive to ask why it is so hard to enforce these laws in the first place. tax law, for instance, can be so complicated that it is unclear to everyone involved (enforcement, accountants, defense counsel) whether a particular strategy is legal. when wrongdoing is difficult to understand, let alone prove, the government should simplify the laws, not make them more draconian. it wouldn't hurt to spend a little more on enforcement either.