ECONOMIC ANALYSIS OF TAX EVASION: DETERIORATION AND SYSTEM OF CRIMINAL SANCTIONS IN BOSNIA AND HERZEGOVINA AND FEDERATION OF BOSNIA AND HERZEGOVINA

Abstract

This paper investigates the tax evasion through the lens of both classical economic 
theory and certain contemporary behavioral approaches, while maintaining focus on empirical 
data on relevant aspects of tax criminal policy, in both Bosnia and Herzegovina and Federation 
of Bosnia and Herzegovina (BiH). The analysis begins with the rational choice framework, 
where individuals, as Homo economicus, are modeled as utility-maximizing agents who weigh 
the expected benefits of evasion against the risks of detection and punishment. 
In non-academic discourse in Bosnia and Herzegovina, there is a prevailing attitude 
regarding the "profitability" of committing tax offenses, which directly implies the inefficiency 
of existing criminal policy. This analysis will examine the classical Allingham and Sandmo 
deterrence model in the context of empirical data related to the suppression of tax evasion and 
criminal policy on tax-related criminal offences. Key findings show that suspended prison 
sentences and imprisonments of up to one year dominate in the structure of imposed criminal 
sanctions for tax-related criminal offences. Institute of substituting imprisonment with a 
monetary fine in criminal policy in BiH negatively affects general prevention in terms of tax
related criminal offences, since it allows for a replacement of imprisonment up to one year in 
prison for monetary fine. The statutory severity of the criminal sanction for tax evasion appears 
sufficient, but the severity of sanctions actually imposed by courts clearly points to a 
problematic psychological attitude toward tax evasion in Bosnia and Herzegovina: there seems 
to be a uniform perception of tax evasion as not being a particularly "serious" criminal offense, 
which indicates a high level of tax resistance among citizens.