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The shaming culture has gone too far

Publicly naming people behind with their taxes can work wonders – but it has its limits, says Matthew Lynn.

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Naming and shaming suffers from diminishing returns

Publicly naming people behind with their taxes can work wonders but it has its limits

Another week, another shaming campaign. We learned this week that the government is planning a campaign to embarrass companies that don't comply with employment laws. We can add that to the long list of things that get you "named and shamed" right now. Last month, it was shaming businesses over not paying the minimum wage. Before that, it was exposing those with a gender pay gap.

A way to get the taxes rolling in

In fact, shaming has become one of the most popular ways that governments around the world enforce the law. In South Africa you get shamed for wasting water, in America for sex offences, and in Australia for speeding. Tax collectors have become some of the most enthusiastic shamers according to the OECD think tank, shaming is now the fourth most-used instrument of tax enforcement. Anyone who hasn't filed their tax return correctly, or paid on time, is not only going to get a stiff penalty, but will also have their name and offence published, and their reputation burned in the process.

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The reason? It works. Nadja Dwenger, an economist at the University of Hohenheim, has just published a study of shaming, looking in detail at a law in Slovenia. Passed in 2012, it stipulated that anyone owing more than €5,000 and more than 90 days late with their payment would have their name and address published on the internet along with their tax ID. If it was a firm, the names of the beneficial owners would also be published. The result? An increase in collection rates and a drop of 8.5% in the total amount of uncollected debt.

There's no great mystery about why. We all care about what everyone else thinks of us. But although the study shows shaming usually works, it also argued that this doesn't mean it should necessarily be used again and again. That is certainly true.

When shaming doesn't work

First, it only works as a one-off. The impact of the first shaming is high. If aimed at a person, they will feel acutely embarrassed. If aimed at a company, it may find itself losing contracts and customers. It will be a very unpleasant experience, and the threat of it potentially happening may well get people rushing to their accountant to check their affairs are in order. But like anything else, diminishing returns kick in very quickly. The second and third shamings are not nearly so bad. After a while, it really doesn't matter very much, and the policy loses its effectiveness.

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Next, it is only the threat that works. After you have been shamed once, there is not much more incentive to comply. Your reputation has already been trashed, and it is not likely to recover quickly, so it doesn't make much difference if you pay the next tax bill or the one after that. Fines, on the other hand, can be just as effective the tenth time as the first. Indeed, fines can often escalate in severity for persistent offenders.

Third, there is often a presumption of guilt. Neither individuals nor companies usually have much chance to defend themselves. And we all know the government makes mistakes all the time. There is no reason to imagine it will be more accurate in its shaming of companies than it will be in anything else it does. Unlike a fine, that can't be undone.

Finally, the most hardcore offenders will be the least affected. Shaming assumes that the individual or company cares at some basic level about what everyone else thinks of them. That is true of most of us. But there are some people who really aren't bothered at all and they are likely to be the worst offenders. Shaming makes no differenceto them.

We are fast developing a culture of shaming. On social media, businesses and individuals are constantly being hounded for minor lapses of judgement. It has created an unpleasant atmosphere of fear and retribution. There is no need for the government to encourage that. Maybe shaming can be used occasionally. But there are far better ways to make companies comply with the law and shaming has already gone way too far.

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