A recent study from the University of Waterloo has provided critical insights into how penalty severity and social norms influence tax compliance, particularly in the context of COVID-19 relief fraud. The work is published in the Journal of Business Ethics.

The study was conducted by professor Dr. Tisha King of Waterloo's School of Accounting and Finance and investigates the behavioral responses of taxpayers when faced with different levels of penalties and social norms, revealing significant findings that can help shape future policies and improve tax compliance.

"This paper extends my previous research by exploring a spectrum of just and unjust punishments. The research establishes that the severity of penalties can encourage compliance and uses a novel approach to measure social norms," explains King.

"One of the key findings of the study is that imposing appropriately severe penalties can deter fraudulent behavior, but only to a certain extent." says King. "Focusing on appropriate penalties even when taxpayers perceive that their peers are not complying with tax regulations, can still inspire tax compliance."

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