This paper considers why limited penalties are used to punish tax evaders. The basic model has all individuals drawing an income from the same random distribution. The individuals must decide whether to report thruthfully or understate their incomes. Two types of individuals exist who differ in...

If total social income is fixed and a social planner is uninformed of the utility representations of different individuals, then Lerner showed that the social optimum is to equally distribute income across individuals. We show that the planner by the use of randomization can in some...