Day-Fines: Should the Rich Pay More?

Abstract

Fines are an efficient method of sanctioning since the burden on the taxpayer for enforcing it is low and the offender is transferring wealth to society. However, using law-and-economics analysis, this paper suggests that the day-fine is a superior model to other forms of fines. This pecuniary measure takes into account the income of the offender and the severity of the offense. Consequently, criminals with different socioeconomic status committing the same crime would pay the same portion of their wealth but not the same absolute amount of money. Using this structure, the day-fine has a potential to deter equally both the rich and the poor and to avoid the costly sanction of imprisonment.

Full text

Elena Kantorowicz-Reznichenko*
Day-Fines: Should the Rich Pay More?
DOI 10.1515/rle-2014-0045
Published online June 6, 2015
Abstract: Fines are an efficient method of sanctioning since the burden on the
taxpayer for enforcing it is low and the offender is transferring wealth to society.
However, using law-and-economics analysis, this paper suggests that the day-fine
is a superior model to other forms of fines. This pecuniary measure takes into
account the income of the offender and the severity of the offense. Consequently,
criminals with different socioeconomic status committing the same crime would
pay the same portion of their wealth but not the same absolute amount of money.
Using this structure, the day-fine has a potential to deter equally both the rich and
the poor and to avoid the costly sanction of imprisonment.
Keywords: day-fines, sanctions, criminal law, deterrence, law and economics
JEL Classification: K14, K42
1 Introduction
…in the ideal world fining would be so precise in relation to income and wealth that default
rates would be uniform across social class. That is not the case now, where both the rich and
the poor present problems; the rich because of the dismissive ease with which they may pay
fines, and the poor because they cannot pay fines. –Ken Pease (1985:74)
The prison crisis experienced by the United States is already well known. In
2013, the United States witnessed an extraordinary rate of 478 sentenced prison-
ers per 100,000 people (Carson, 2014). Remarkably, that rate is down from 760
prisoners per 100,000 population in the mid-2000s. This remarkable growth in
incarceration led to the absurd situation where Americans constitute 5% of the
global population, yet detain 25% of the world’s prisoners (Kirchhoff, 2010). The
incarceration rate in Western Europe, on the other hand, is significantly lower.
For instance, in approximately the same period Germany detained only 62
sentenced prisoners per 100,000 in population (The International Centre for
Prison Studies). In fact, only 5% of the criminal cases in German courts end
with imprisonment. The majority of cases, i.e. 82%, are dealt with through fines
*Corresponding author: Elena Kantorowicz-Reznichenko, Rotterdam Institute of Law and
Economics (RILE), Erasmus School of Law, Erasmus University Rotterdam, Rotterdam, The
Netherlands, E-mail: reznichenko@law.eur.nl
Rev. Law Econ. 2015; 11(3): 481–501
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(Strafverfolgung –Fachserie 10 Reihe 3, 2012). One of the unique features of the
German criminal system, as well as other West European criminal jurisdictions,
is that they apply day-fines instead of the fixed fine model that is widespread in
the United States.
The day-fine system is based on a two-stage process. In the first stage, the
court
1
assesses the severity of the offence and imposes the number of days for
which the fine will be paid. The severer is the crime, the higher is the number of
days. In the second stage, the court estimates the financial state of the offender
and sets the daily unit of the fine equal to a certain fraction of the person’s daily
income. The total fine imposed on the offender equals the number of days
(which is the same for all offenders committing the same crime) multiplied by
the daily unit (which differs between offenders). Consequently, although the
nominal amount paid differs across offenders who have committed the same
crime, the relative burden of the punishment is the same.
This type of a penalty system prevents wealthy people from appearing to
“purchase”the right to commit offences because the relative costs imposed on
them are the same as on low-income offenders. For instance, in 1999, a €116,000
fine was imposed on a driver who exceeded the permitted speed limit in
Finland.
2
Similarly, in 2001, the Finnish criminal justice system imposed a fine
of around €35,300 on a driver who drove through a red light.
3
Although at first
glance those sanctions seem excessive, in practice, the daily unit (the proportion
of income) of the fine and the number of the imposed days were the same as for
low-income offenders. However, the yearly income of these two drivers was
assessed in millions; thus, the nominal fine was high.
In the law-and-economics literature, a fine is an important form of sanction and is
often treated as superior to imprisonment. The reasons are the low enforcement cost
of fines and the fact that the perpetrator transfers the fine proceeds back to society.
On the other hand, prison imposes high costs both on the offender and on
the state (Becker, 1968).
4
Since the seminal work by Becker (1968), scholars have
attempted to develop a model for the optimal fine, which would achieve
1In some systems, other enforcement authorities (e.g., the prosecution and the police) are
empowered to impose day fines; therefore, when I use the word “court,”I mean to encompass
these authorities as well.
2See http://news.bbc.co.uk/2/hi/europe/1759791.stm (accessed June 1, 2015).
3See http://www.iltasanomat.fi/kotimaa/art-1288335939159.html, in Finnish, (accessed
June 1, 2015).
4Based on the deterrence model, the criminal would refrain from committing crimes if the
expected costs of his crime are higher than the expected benefits from his illegal activity. The
enforcement authorities are able to change the expected costs of crime by altering the severity
of punishment or the probability of being detected and punished. Other public policies can alter
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deterrence in the least costly manner. One model, which is derived from tort law,
suggests setting the fine equal to the harm caused by the offence (e.g., Polinsky
and Shavell, 1979). Another theoretical suggestion is to set the fine equal to the
wealth of the offender. However, the most-practiced model of pecuniary punish-
ment is the “fixed fine,”which sets the fine based on the severity of the offence
and the blameworthiness of the offender.
This paper analyzes the system of day-fines from the law-and-economics
perspective. I assert that based on this approach, the day-fine system is a
superior model to other pecuniary sanctioning methods. First, contrary to the
other models, the day-fine enables the enforcement authorities to use this
penalty as a sole punishment for many offences without resorting to imprison-
ment.
5
The reason is that the fine takes into consideration the offender’s capa-
city to pay. This might also serve as a possible explanation for the low
incarceration rates in countries that apply this fine. Second, in the day-fine
system, the court may tailor the size of the fine to both the offence (i.e., the
severity) and the offender (i.e., his wealth), thus potentially achieving general
deterrence without harming marginal deterrence. Furthermore, a structured
sentencing system such as the day-fine system is attractive from the legal
perspective because it improves uniformity across judges, hence increasing
legal certainty, and ensuring an equal treatment of offenders.
To the best of my knowledge, this article is the first comprehensive analysis
of the day-fine system in comparison to other models (theoretical and practical)
of pecuniary sanctions. One related contribution may be found in the economic
model depicting different virtues of wealth-dependent fines presented by Moshe
Bar Niv and Zvi Safra (2002). However, this contribution does not deal exten-
sively with other models of fines to stress the advantages of day-fines. In
addition, unlike the current article, it does not provide a comparative analysis
of the day-fine system in the countries applying it, which assists in understand-
ing the superiority of this model to other fines.
This paper is structured as follows. Section 2 describes the system of day-
fines, particularly its structure and use in different jurisdictions. Section 3
analyzes the advantages of the day-fine over other fine systems. I discuss
the expected benefit of crime by raising the opportunity cost of crime, as by making legitimate
employment more certain and more rewarding.
5Of course, day-fines, as is the case with other fines, may not deter all crimes. The worst
crimes, such as murder, rape and other grave violent crimes, are not expected to be affected by
this fine. Nevertheless, in most jurisdictions, the worst crimes constitute only a fraction of all
crimes (see, for example, Truman and Langton, 2014 stating that in 2012 there were 1,271,770
victims of serious violent crimes, as compared to 13,111,940 victims of property crimes).
Therefore, the importance of day-fines in potentially deterring crime is significant.
Day-Fines: Should the Rich Pay More? 483
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possible limitations of day-fines in Section 4. Finally, Section 5 provides some
concluding remarks.
2 Day-fines
Day-fines, also called “unit-fines,”are a two-step monetary sanction procedure.
The court first decides upon the severity of the offence and based on this
ranking, it sets the number of day-fines to be imposed on the offender. In the
second stage, the court sets the daily unit based on the income of the offender
and multiplies this amount by the previously defined number of days (Bureau of
Justice Assistance, 1996). It should be noted that certain basic expenses and
financial support for dependents are usually deducted from the imposed daily
unit. Consequently, two offenders who committed the same crime would be
sentenced to the same relative punishment, yet, to a different nominal amount
of fine. Thus, the relative burden imposed by the sentence is the same for all
criminals committing similar crimes regardless of their wealth.
To illustrate, a numerical example may be of use. Two similar offenders (in
terms of criminal history) Xand Y, committed a very similar crime of theft.
However, the daily income of offender Xis €100 and the daily income of
offender Yis €20. In the first stage the judge will decide on the number of
days which needs to be paid, based on the severity of the crime, for instance, 12
days. In the second stage, depending on the daily income of each offender, the
court will determine the daily unit of the fine. The daily portion of the fine may
be 50% of the income (to allow the offender to finance his daily basic needs). In
this case, the daily unit of the fine for offender Xis €50, and €10 for offender Y.
Finally, the court needs to multiply the number of days by the daily unit. As a
result, the imposed fine on offender Xis 12 50 ¼€600. Offender Yis required
to pay 12 10 ¼€120 for the same crime. This example demonstrates that the
nominal fine is different for the two offenders. Yet, the relative burden imposed
on them by this sanction is equal, i.e. 50% of their 12-day income.
Jeremy Bentham offered the theoretical concept of this fine in the nineteenth
century. According to his proposal, the relative and not the absolute amount of
the fine should be fixed depending on the severity of the offence. Consequently,
the wealthier offender would pay for the same offence an equal fine in relative
terms but a higher fine in absolute terms (Bentham, 1931).
However, this innovative approach was implemented in practice only in the
twentieth century. The first country to introduce day-fines was Finland in 1921.
Other Scandinavian countries followed this practice (e.g., Sweden in 1931 and
Denmark in 1939). However, only several decades later did other European
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countries adopt the day-fine: Germany and Austria in 1975; Hungary in 1978;
France and Portugal in 1983; Spain in 1995; Poland in 1997; and lastly,
Switzerland in 2007. Nevertheless, to this date there are still European countries
that maintain the fixed-fine system: The Netherlands, Norway, Italy, Belgium
and Iceland (Albrecht, 2009). The UK legislature adopted the new day-fine
system in 1991; yet, due to judicial resistance, it was abolished after a few
months. Despite that, there is an ongoing discussion in the UK to reintroduce
the day-fine (Ashworth, 2010). Although the basic model of day-fines in all
countries applying it is the same, the manner in which it is implemented varies
significantly (for a summary, see Table 1).
Day-fines are used in the United States as well, but not in all jurisdictions
and not to the extent of European criminal justice systems (Zedlewski, 2010).
The first local jurisdiction that experimented with day-fine was Richmond
County in Staten Island, New York, in 1988. The goal was to assess the success
of transplanting the European model to American courts. The results of this
experiment were positive, and later on it was experimented with by other
counties as well (Bureau of Justice Assistance, 1996).
The Criminal Code of Finland is a good example of a day-fine system.
Finland has gone through many legal reforms in general and with regard to
day-fines in particular. According to the current Finnish Criminal Code, the
number of day-fines that may be imposed on a perpetrator is limited to 120
days for one offence
6
and 240 days
7
if the offender is sentenced for more than
one offence. The daily amount of the fine should equal 1/60 of the offender’s
average monthly salary less taxes and deductions. This is roughly 50% of the
offender’s daily net income (Lappi-Seppälä, 2009).
8
The initial reduction for
basic needs is €255 (Statistics Office Finland, 2012). Interestingly, the law does
not provide an upper limit for the day-fine amount. As a result, the fines for
relatively light offences are occasionally very high (as illustrated in Section 1).
Germany, on the other hand, is notable for using day-fines extensively and
imposing them on a variety of offences. The minimum number of days of day-fines
that may be imposed is five and the maximum is 360 days. Furthermore, the daily
unit of the fine is limited to €30,000. The German criminal sentencing system
exercises only two types of sanctions –day-fines and unconditional and conditional
imprisonment (Albrecht, 2013). However, most of the convicted offenders are dealt
with by means of fines. For instance, in 2012, approximately 82% of all sanctions
imposed by the German courts were fines (Strafverfolgung –Fachserie 10 Reihe 3,
6§ 1(1), Chapter 2a t o The Criminal Code of Finland (39/1889, amendments up to 940/2008 included).
7§ 3(2), Chapter 7 to The Criminal Code of Finland (39/1889, amendments up to 940/2008 included).
8§ 2(2), Chapter 2a to TheCriminalCodeofFinland(39/1889, amendments up to 940/2008 included).
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2012). This situation is possible since not only minor offences are punished by the
day-fine, but also more severe crimes, such as assault, property, fraud and drug
offences (Albrecht, 1991). In addition, according to the German Criminal Code the
day-fine is the default choice in all cases subject to less than 6 months’imprison-
ment, unless special circumstances justify otherwise.
9
Interestingly, due to a
decreasing prison population, some German Länder sell unused prisons to private
investors who convert them to other purposes (Degenhardt, 2013).
Table 1 demonstrates that only two countries do not place an upper bar on
the amount of the imposed fine –Finland and Denmark. Differences may be
Table 1: Day-fines in Europe (in days and €
a
).
Count. Year Max. no.
days
Min. no.
days
The daily
unit limit
Result of
default
Ratio Fines
to prison
b
Scope of wealth
Finland    –Prison :Income
Sweden    .– Prison –Wealth and income
Denmark    .–Prison :Income and wealth
Germany    –, Prison :Income and assets
Austria    –, Prison :Economic capacity
Hungary    .– Prison :Income and “financial
situation”
France    −, Prison :Income
Portugal    – Prison :/Economic and financial
conditions
Lichtenstein    .– Prison :Economic capacity
Spain
c
   – Prison :Financial situation incl.
assets
Poland
d
   .– Prison
e
:Income and assets
Croatia
f
   .–, Prison
g
:Income and assets
Switzerland    −, Prison :Income and capital
Source: Author’s own table based on the national criminal codes.
Notes:
a
Not all countries in the table are using the euro currency. For comparison, I converted the national
amounts to euros.
b
For example, 3:1 means that 3 days of fine are equal to one day in prison.
c
Article 50 to The Spanish Penal Code makes a distinction in the main day-fine provision between fines in the
regular context and fines for “legal persons”(e.g. corporations). For legal persons the maximum length is 5
years, and daily unit is €30–€5,000.
d
Although the maximum number of day-fine for ordinary crimes is 540, it is raised to 3000 days for fraud
offences. See, Arts. 296 § 3, Art. 297 § 1 or Art. 299 to the Polish Criminal Code.
e
This is based on Art. 46 of the Criminal Enforcement Act (Kodeks karny wykonawczy).
f
The upper limit of the number of day-fines may be raised up to 500 days for certain offences. Art. 42 of the
Croatian Criminal Code 1998 (amended in 2011).
g
If the offender agrees, the unpaid day-fine may be replaced by a community service punishment. Then one
day-fine equals four community service hours. Art. 43(2) of the Croatian Criminal Code 1998 (amended in 2011).
9Section 47 –Short terms of imprisonment as the exception, German Criminal Code (StBG).
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found in the maximum number of days of fine, Denmark having the lowest and
Spain having the highest limit. However, the most common upper limit of days
is 360 (5 jurisdictions). There are variations also in the de jure prescribed amount
of the daily units. All criminal codes state that prison is a substitute for a fine,
yet the ratio of the number of “day-prison”sentences to day-fines differs across
countries. Finally, the scope of the wealth that is included in the calculation of
the daily unit also varies across jurisdictions.
3 The superiority of day-fines from the
law-and-economics perspective
The day-fine has advantages from the law-and-economics point of view that
make it superior to other models of fines. The following sections describe other
theoretical and practical methods to set the proper fine and illustrate the
supremacy of the day-fine by comparing it to the other models.
3.1 Fines equal to the wealth of the offender
One of the most common models proposed by law-and-economics scholars
suggests setting the fine equal to the wealth of the offender. Although the first
to mention the benefits of a maximal fine was Becker (1968), an explicit discus-
sion of this fine was developed by other scholars. In their paper Polinsky and
Shavell (1979) offered a model in which they show that the optimal fine for risk-
neutral violators is a maximum fine equal to their wealth. The probability of
detection, on the other hand, should be set as low as possible.
10
The explanation
for this conclusion rests on the different expected costs for imposing a fine and
for increasing the probability of detection. Whereas fines are assumed to be
costless, apprehending offenders is pricey. Therefore, if the fine does not equal
the offender’s wealth, it is not yet optimal because there is still a possibility of
reducing the costly probability on the expense of raising the fine (Polinsky and
Shavell, 1984).
When it is assumed that offenders differ in wealth, scholars propose that the
optimal fine will equal the entire wealth of only the lower income offenders. For
other individuals (with higher income), this fine will be less than their entire
wealth. The reasoning behind this argument is that a fine equaling the wealth of
10 It is assumed that violators are identical, also with respect to their wealth.
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the highest-income offender combined with a low probability of detection will
optimally deter him. Yet, it will have a weaker deterrence power on many others
who are incapable of paying such a fine. Therefore, for most offenders it is
optimal to raise the probability and lower the fine (Polinsky and Shavell, 1991).
Alternatively, those with higher wealth should receive a higher fine than
others but not equal to their wealth. The reasoning behind this argument is that
a fine equal to the wealth of the low-income offender under-deters both the poor
and the rich. Whereas it is impossible to raise the fine further for the low-income
criminal, it is still manageable to increase the fine for the wealthy without
imposing further costs on society. However, this fine should not reach the
maximum wealth of the high-wealth offender because in this case they might
be over-deterred (Polinsky and Shavell, 1984).
The first theoretical difficulty
11
with the suggestion of a fine that equals the
wealth of the person is the fact that it overlooks marginal deterrence. Cesare
Beccaria and Jeremy Bentham long ago noted that proportionality should be
maintained between the severity of the offence and the harshness of the punish-
ment. The rationale behind this suggestion is to incentivize the undeterred
offenders to at least commit less serious crimes. In order to achieve marginal
deterrence the most severe sanction should be imposed on the gravest crime. As
the severity and the harmfulness of the offence diminish, so should decrease the
harshness of the punishment (Bentham, 2007; Beccaria 1983; Stigler, 1970;
Shavell, 1992).
A maximal fine might achieve general deterrence but does not reach the
marginal deterrence objective (Polinsky and Shavell, 1999).
12
For instance, a
driver under the influence of alcohol causes an accident with his vehicle and
injures another person. If the sanction is maximal for all offences (the entire
wealth), this offender is incentivized to escape from the scene in order to avoid
detection and punishment. The costs of committing one crime (injuring a person
11 Of course, there is also a practical resistance to this rule as can be seen by its absence in
criminal justice systems. No person is usually fined to the extent of his wealth. One reason
might be the unconstitutionality of such a sanction. In Germany, for instance, the basic right to
dignity, which is enshrined in the German constitution, requires the state to provide the people
with basic means for a dignified life (see the Constitutional Judgment of 9 February 2010–1 BvL
1/09, available at http://www.bundesverfassungsgericht.de/SharedDocs/Entscheidungen/EN/
2010/02/ls20100209_1bvl000109en.html, accessed February 15, 2015). From this interpretation,
it may be reasonably inferred that the state cannot also confiscate the entire wealth of the
offender. The result of such action would be the deprivation of that person from his basic needs.
In turn, this action might violate the constitutional right to dignity.
12 The authors suggest that keeping marginal deterrence on the other hand requires setting
very low sanctions for certain offences (the least harmful) and as a result failing to deter them.
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as a result of driving while intoxicated) equal the expected costs of committing
multiple crimes (the additional “hit and run”offence). The latter crime is severer
since it is believed that the offender who remains at the crime scene may call for
help and save the victim’s life. Therefore, increasing the punishment for the “hit
and run”offence as compared to “just”causing injury will achieve marginal
deterrence. In this case, the offender might choose to take the risk of being
punished for injuring another person, which is lower than the additional sanc-
tion for leaving the scene.
Another example is the case of fraud. This crime is punishable by fines in
some European countries. If the sanction is always the offender’s wealth, then
he is incentivized to commit a fraud of a greater scale, with more victims and
higher gains.
In his paper from 1991, Steven Shavell indeed suggests that the fine might
be lower for less harmful acts. Although this approach is in line with marginal
deterrence, the author’s rationale for this sanction is that less severe crimes may
simply be deterred by a lighter sanction; therefore, there is no need to impose a
maximum fine (Shavell, 1991).
One solution for the deficiency of marginal deterrence might be manipulation
of the probability of detection and punishment. Because the total fine has two
components, severity and probability, the expected fine may be changed by
increasing or decreasing the probability. For instance, offender A commits a petty
theft, and offender B steals a car. The fine for both of them would be their wealth;
however, the probability of offender B being detected and punished is higher than
for A, thus, having higher expected costs of crime. Consequently, marginal deter-
rence may be achieved.
13
However, in practice, contrary to a fine, the probability of
detection may not be precisely tailored to the offence. To be precise, it is possible to
increase or decrease the amount of fine to perfectly fit different offences. Yet, the
investment of resources for the purpose of increasing the probability of detection
does not correlate in a perfect linear way. It cannot be assumed that each additional
policeman would increase apprehension by a constant fraction.
Furthermore, an increase in the probability of detection also has non-tangi-
ble costs that may provoke public resistance in democratic systems. If the
enforcement budget is infinite, it is possible to place police and surveillance
14
everywhere. This type of policy might serve to detect and prevent all crimes.
13 This is merely a theoretical remark. Of course, in practice a probability may not be set ex
ante for each specific crime. Furthermore, even if it was possible, it is doubtful that criminals
would have accurate information on that.
14 Surveillance might include cameras on the streets and in closed locations, inspection of
e-mails, wiretapping, etc.
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However, it is reasonable to assume that the legitimacy of such a policy would
be challenged on the grounds of privacy and personal freedom. Thus, the
probability may not be increased limitlessly even for the most severe crimes.
3.2 Fines equal harm
Another model of pecuniary sanctions is the fine that equals the harm.
15
This
system is considered to be efficient in deterring undesirable behavior.
16
Yet, the
effectiveness of this rule is conditioned on maximum probability of detection and
conviction, in that any probability lower than unity would lead to an incomplete
compensation of the loss. In practice, increasing the probability of detection and
conviction is costly and rarely, if ever, equals 1 (Becker, 1968; Polinsky and Shavell,
1979). In order to solve this problem, some have suggested that the optimal fine
should equal the harm, yet be inflated by the probability of detection (Polinsky and
Shavell, 1992). To be precise, since the probability of being caught is lower than 1,
the imposed fine should be higher, by the proportion of the given probability. For
example, if the harm equals €100, and the probability of detection is 0.2, then the
optimal fine which is expected to achieve deterrence is 100/0.2¼€500.
In theory such a fine solves the problem of marginal deterrence since harm
may serve as a proxy for severity. The larger is the harm, the severer is the
sanction. Therefore, this sanction would at least deter the graver offences.
Nevertheless, if the offender has a very limited wealth, he might not be able to
repay the fine for many offences; thus, he might not even be marginally deterred.
In addition, this type of fine might be inefficient in achieving general
deterrence in different groups. If the harm is low, wealthy offenders may still
choose to offend.
17
On the other hand, if the harm is very costly, low-income
15 Another similar theoretical model of pecuniary sanctions, which is discussed and rejected by
Polinsky and Shavell (1994), offers to impose a fine equal to the gain of the offender. However,
the arguments presented with regard to the model of “fine equals harm”are also relevant for
this model of fine. For instance, if the fine is inflated by the low probability of punishment, the
low-income offenders might not be able to repay this fine.
16 The idea is that the fine acts as a Pigouvian tax. The violator is required to cover entirely the
external costs of his activity. In other words, to cover the costs of the harm he caused. If the
probability of detection was perfect, this would deter all inefficient activity (see Polinsky and
Shavell, 1979). Therefore, a fine that equals the harm is meant not only to compensate the victim
for his harm, but in the context of this paper, it is also intended to deter the harmful behavior.
17 For the purpose of tort law or regulatory fines this might not matter. The goal might be
simply to internalize the costs created by the violator. However, in the context of this article, the
assumption is that criminal law intends to prevent behavior and not just to reach a certain
optimal level of activity.
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offenders may not be able to afford to compensate for it; thus, they may not be
punished solely by the fine.
3.3 Fixed fines
Fixed fines are the most commonly used financial penalties in Western society.
The amount of the fine usually depends on the gravity of the offence and the
extent of blameworthiness of the offender (Ashworth, 2010). This fine does not
take into consideration the offender’s wealth in a systematic way (Bureau of
Justice Assistance, 1996). The disadvantage of this kind of system is the inability
to use fines as a sole sanction for all offenders since they have different financial
capacities. Therefore, those culprits who are not able to pay the fine are defined
as fine-defaulters and imprisoned for a limited period of time.
18
From the law-and-economics perspective, a uniform fine for all offenders
committing similar offences might lead to a constant under-deterrence of
wealthy offenders if it is set too low. Setting a too high fine, on the other
hand, may impede marginal deterrence. In other words, the fine may be set
high enough to discourage wealthy people from committing crimes. However,
low-income offenders will probably not be able to pay this fine. Therefore, in the
absence of imprisonment for fine-defaulters, there is no marginal deterrence.
That is to say, the low-income delinquent might choose to commit severer crimes
since the expected costs for him are the same as for the lighter offence.
Nevertheless, in practice, even the countries that prefer this form of fine do
not entirely disregard the income of the person. For instance, in the Netherlands
the system of “fixed sum fines”is practiced. Article 24 of the Dutch Penal Code
asserts that the imposed fine should account for the financial ability of the
offender and should not disproportionally affect his income and assets.
Therefore, there are two proportionality tests that the courts need to follow
when deciding on an appropriate fine. First, the fine needs to be proportionate
to the severity of the crime. Second, the size of the fine has to be proportionate
to the capacity of the offender to pay (Tak, 2001, 2008). This is different from the
“classical”fixed-fine system where the only important element is the severity of
18 De jure, no criminal justice system would deliberately design a law according to which rich
people would pay fines and poor people would serve their punishment in prison. However,
when income is not taken into account, poor offenders often are not able to pay the imposed
fine. Wealthy offenders, on the other hand, are capable of paying those fines. Consequently, de
facto, those systems might create a situation where poor offenders serve prison time, and
wealthy offenders, who commit the same crimes, pay fines.
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the crime. Similarly, in England and Wales the Criminal Justice Act 2003 states
explicitly that a court should inquire about the offender’s financial state and
consider this information when setting the fine.
19
This practice might be explained by the attempt to better discourage criminals
from committing crimes while avoiding the costly sentence of imprisonment. To
achieve this goal, it is required, however, to systemize the consideration of the
offender’s financial state. According to the deterrence theory, the criminal justice
system prevents crime by creating expected costs for the criminal. However, when
the guidelines for calculating the fine are general, it is not known ex ante what the
punishment will be. Therefore, potential offenders cannot accurately take the
expected costs into account.
Indeed, this issue might be found in practice. There is evidence for a con-
siderable variation in the interpretation of guidelines by the different courts. As a
result, fines for similar crimes and offenders vary depending on the sentencing
court (Ashworth, 2010). It is not a surprise that without guidelines for a systematic
consideration of the offender’s financial state, judges will differ in their pecuniary
sanctions. In these circumstances, the fundamental requirement of “equality
before the law”is harmed as well. The location of the trial should generally be
irrelevant to the decision on the severity of the punishment. From the law-and-
economics perspective differences in imposed fines on similar criminals commit-
ting the same crime might distort incentives. For example, if courts in one city
impose lower fines than in other cities, crime might be displaced to the former
area.
3.4 The day-fine
The day-fine may be considered as superior to the above-mentioned models
from the law-and-economics point of view. The criminal law usually consists of
a great range of offences that vary in their severity and harm. Similarly, society
consists of many potential offenders who differ in their income and their blame-
worthiness for committing a wrong. Therefore, in theory, a system that is able to
tailor the sentence in a systematic way to fit all the features described above
may achieve better general and marginal deterrence.
The maximal fine might achieve efficient general deterrence from commit-
ting crimes since it threatens the offender’s entire wealth. Nevertheless, it misses
the element of marginal deterrence, as explained in Section 3.1. On the other
hand, a fine that equals the harm and a fixed fine may achieve marginal
19 §164, Part 12, Chapter 1 to the Criminal Justice Act 2003.
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deterrence for at least part of the population, since the magnitude of the punish-
ment increases with the severity or the harm of the offence. Yet, it risks a
constant under-deterrence of those offenders for whom this fine is insignificant.
Furthermore, it does not achieve a complete marginal deterrence since the group
that cannot afford to pay the fine is incentivized to commit harsher crimes (Chu
and Jiang, 1993).
The day-fine combines the advantages of the above-mentioned models but
avoids their shortcomings. The underlying feature of the day-fine system is that
it imposes an equal relative burden on all offenders with respect to the crime
they commit and regardless of their wealth. On the one hand, it considers the
severity of the crime by changing the number of day-fines accordingly. On the
other hand, it takes into account the financial capacity of the offender through
the unit of fine. Those two steps assure that the fine is high enough to generally
deter potential offenders from committing crimes, irrespective of their wealth.
Furthermore, in case some criminals are not deterred from committing all
crimes, it sets different expected costs for different offences to prevent the
severer crimes.
3.5 Legal provisions necessary for the success of day-fines
Although day-fines may be an efficient tool to achieve general, as well as
marginal deterrence, some conditions should be met. First, the criminal code
ought to allow for payment of the fine by installments. If the total amount of the
fine must be paid at once, the day-fine would lose the advantage of potentially
increasing the payment rate since low-income offenders might not have the full
amount. Indeed, many of the jurisdictions practicing the day-fine permit pay-
ment in installments (e.g., France, Germany, Austria, Switzerland, Poland,
Portugal and Spain).
20
The second essential provision for an efficient application of day-fines
should include sufficiently detailed guidelines for calculating the fine. In order
to prevent the undesirable situation of non-uniform fines across different judges,
the law ought to provide precise instructions of what should be taken into
account in calculating the day-fine. One example of detailed guidelines may
be found in the Finnish law.
21
In addition, to avoid under-deterrence the unit of
the fine should encompass the entire wealth of the offender and not only his
20 National Criminal Codes.
21 §2(5), Chapter 2a, The Criminal Code of Finland instructs to issue a detailed decree for the
guidelines.
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personal income. If only the income is included, persons with profits from other
assets would be under-deterred since the daily unit would underestimate their
wealth.
The third legal element is the lack of an upper bound on the daily unit.
Whenever the law sets a limit to the daily unit that may be imposed on the
offender, it allows for under-deterrence of certain high-income offenders. This
practice introduces the disadvantage of the fixed-fine, even though the model of
day-fines strives to encompass all offenders regardless of their wealth.
Nevertheless, currently only two jurisdictions comply with this condition –
Finland and Denmark.
22
The reason for that might be the concern of other
countries about imposing sanctions that seem too high on rich people who
commit light crimes (Vermogensstraffen, 1969). For instance, the example of
the Finnish driver who received a €116,000 fine for speeding might surprise
and evoke resistance. However, from the law-and-economics point of view, if
this is the necessary amount that might achieve general deterrence without
harming the marginal deterrence, it is an efficient fine. In addition, there is an
argument that the absence of an upper bound on the daily unit increases the
discretionary power of judges and leaves this decision completely in their hands
(Vermogensstraffen, 1969). This objection is not entirely correct since the day-
fine system provides guidelines of what should be the portion of the daily unit.
Thus, there is an upper bound on the proportion that limits judges’discretion.
Lastly, in order to achieve an efficient usage of financial information regard-
ing the offender, the legal system should allow access to this information. Some
legal systems limit the authorities from obtaining certain fiscal data, thus
hindering the possibility to correctly assess the offender’s wealth (Hillsman,
1990).
4 Possible limitations of day-fines
This section discusses possible limitations of day-fines. It presents four potential
issues for criticism that may be raised in the context of the structure of day-fines.
Following that, possible responses are also discussed. As with any criminal
policy, this model of pecuniary sanctions might evoke some concerns.
Nevertheless, those concerns should not justify the rejection of day-fines.
22 Interestingly, although Germany still has an upper bound on the daily unit, it was recently
increased from €5,000 to €30,000. This might suggest that indeed a low bound is inefficient.
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4.1 Behavioral approach to criminals
There is a growing literature on the lack of consistency between the actual
probability of detection and the severity of punishment, and the perceived
probability (for example, Robinson and Darley, 2004; Kleck et al., 2005;
McAdams and Ulen, 2009; Maccoun et al., 2009). This literature demonstrates
that although punishment as such deters, criminals are often mistaken regarding
their chances of being caught and their expected punishment. One criticism of
the day-fine system might be that such findings impede its effective deterrence.
There are several possible replies to this limitation. First, if the behavioral
approach is correct, all sanctions are subject to it. Therefore, this argument may
not serve as a reason to prefer one of the other models of fine. Second, day-fines
provide at least some reference point on which the criminals may rely when
assessing their expected punishment. Unlike fixed fines, where the amount
might be completely unknown, with the day-fine system offenders are at least
aware that the punishment will be a specific portion of their wealth. As a result,
even wealthy offenders might expect a significant punishment and not just an
unknown low fine. And lastly, if we adopt the behavioral approach, day-fines
might be better at deterring criminals through different cognitive biases. For
instance, the Finnish sanctions that are mentioned in Section 1 are very salient
and “shocking.”Therefore, through the availability heuristics (Tversky and
Kahneman, 1973) those extreme cases might be readily available in the crim-
inals’minds and increase the deterrence of day-fines.
4.2 High error costs
The system of day-fines, especially without an upper bound of the unit fine, risks
high error costs. The criminal justice system is not perfect and there is always a
chance of mistakenly convicting the wrong person. Most jurisdictions use the
procedural rule of “beyond a reasonable doubt”to prove guilt in order to minimize
this risk, yet it still exists. When the punishment is severe, the costs of this possible
error increase. In case of an extreme pecuniary penalty, the obligation to pay this
fine may impose an extreme burden on the innocent individual. Although this is a
valid weakness of day-fines, this punishment, relative to other sanctions, has the
advantage of being reversible. A person who was executed may not be returned to
the living in case his innocence is discovered. Even an individual who is wrong-
fully imprisoned may not regain his lost years of freedom if proven innocent.
23
23 Although he may receive a sum of money that, in so far as is possible, might compensate
him for his years of lost freedom.
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Despite those high error costs, all of the western criminal justice systems
practice imprisonment, and some still maintain the death penalty. In contrast, a
person who was wrongfully convicted and paid a high fine may be fully compen-
sated. The state may even repay this individual for any associated losses endured
by him due to the execution of the sentence. Therefore, the expected error costs of
day-fines are significantly lower than the error costs of harsher sanctions, and
should not constitute an argument against the application of day-fines.
4.3 Preventing efficient breach
Another challenge to the day-fine system is that it impedes an efficient breach.
The notion of an efficient breach was developed in the context of contract law.
Sometimes the performance of a contract may turn out to be more expensive
than the benefits for all the involved parties from breaching it. For example, if
an unexpected event occurs that raises the cost of performance beyond the
promisee’s expected benefit from performance, it would be inefficient for the
promisor to perform. From an economic perspective, in such circumstances the
efficient result is to breach and compensate the other party for his loss, rather
than to force performance (Posner, 1972).
In theory, in the context of criminal law there might also be a situation
where the costs of compliance could be higher than the costs of a breach (a fixed
fine). Thus, the individual may decide to violate the rule and pay the fine for it.
This might be considered as a socially efficient result. Opponents of day-fines
may claim that an efficient breach is possible under the fixed fine but limited in
case of a tailored fine. One example was given by Gary Becker in his Nobel Prize
Lecture (1993). Becker described a situation where he was late for an oral exam
of a student and had to decide whether to park in a prohibited area, thereby
risking a fine, or drive to a farther-away parking lot, risking being very late for
the exam. After comparing the costs of complying and the costs of breaching the
law, he decided to leave the car and to violate the parking rules. Therefore, for
Gary Becker this was an efficient breach, or an efficient violation.
Unlike fixed fines, there might not be an upper limit on the total amount of a
day-fine. As a result, for rich offenders the fine may appear to be dispropor-
tionate to the severity of the violation. Thus, such a fine might prevent a
situation where the breach of a rule is less costly than compliance, even if the
utility this individual derives from violating the rule is very high.
There are several replies to this objection. First, criminal law deals with a
prohibition of activity per se and not with the regulation of its level. Thus, when
certain behavior is criminalized, the purpose is to eliminate it and there is no
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space for an efficient breach. If the aim is to regulate the level of activity, the
behavior should be dealt with through tort law or a regulatory tax. In this case
people are simply obliged to internalize the costs of the externalities their
activity produces. Therefore, they may choose to act upon an efficient breach
when compliance is more costly than the “penalty.”
Second, even if an efficient breach is recognized in the criminal law, there are
ways to promote it under the day-fine system. It seems that all of the Western
jurisdictions bestow upon the courts at least some discretionary power to consider
special circumstances. Therefore, they may mitigate the sanction of a person who
violated the rule due to an efficient breach, such as the case of a wealthy man who
was speeding to rush his delivering wife to the hospital and was detected violating
the traffic rules. He might be subject to a high fine due to the violation and his
level of wealth. Yet, his behavior might have been justified based on the efficient
breach concept. Too high a fine might deter him from rushing to the hospital and
reaching there on time, thus endangering the health of his newborn child and
wife. However, the court might take into consideration the blameworthiness of
this individual and mitigate his punishment due to the special circumstances.
Third, the day-fine is not simply a high pecuniary penalty that may prevent
an efficient breach. It is a proportional fine that imposes an equal relative
burden on all offenders. Therefore, the violator may still decide it is efficient
for him to breach certain rules. On the other hand, low fixed-fines simply create
incentives for the rich not to comply with the law since the “purchase”of
violations might be perceived as a utility-maximizing strategy. Consequently,
those fines would lead to under-deterrence of the wealthy population.
4.4 Corruption and selective enforcement
First, the high fines for wealthy offenders might incentivize corruption. When
the fine is significantly high, there is a large scope for bribery. For instance, in
the example of the Finnish speeding driver who received a day-fine equal to
€116,000 he may be incentivized to pay a lower sum to avoid trial and fine. This
sum is very high and might create a strong temptation for the officer to release
the criminal. The corruption argument is valid, yet cases of such high fines are
quite rare. Furthermore, in countries where strong mechanisms for fighting
corruption are in place, this argument should not constitute a justification for
not using day-fines. Finally, the sanction for corruption may also be adjusted
and be made especially severe for those cases.
Second, police may target rich offenders since the fines they will need to pay
are higher. Such behavior would discriminate against wealthy offenders. At the
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same time, it would reduce the police’s attention to and efforts at apprehending
other criminals. Consequently, less wealthy offenders might face a lower prob-
ability of detection and thus be more incentivized to commit crimes. Nevertheless,
this problem is not expected to be prevalent since police officers are evaluated on
the basis of clearance rates. If they disregard the less wealthy criminal population,
they will experience a very low clearance rate, since the majority of offenders are
not wealthy. Furthermore, the revenues from the collected fines are not transferred
to the police officer but to the state budget. Thus, they do not have direct
incentives to pursue wealthy offenders more rigorously.
5 Concluding remarks
Fines are perceived as a desirable method of sanction, from the legal perspective
as well as from the point of view of law and economics. First, it has lower costs
of administration than other sanctions. Second, fines are transferred to the state
budget and increase its revenue. Third, this sanction avoids the negative effects
that prison causes and reduces prison overcrowding. However, a question
remains what is the proper fine and how to use it. For a pecuniary punishment
to be considered efficient and constitute a significant alternative sanction to
custody, it should meet a number of requirements. It should have a general
deterrent effect on criminals. Furthermore, it should also achieve marginal
deterrence, i.e. reduction of the severest crimes. And finally, the fine ought to
be set in a way that enables the offenders to pay it; otherwise, it may not be used
as a sole sanction for many offences.
There are different models of fine, yet only day-fines have the potential to
meet all the above-mentioned conditions at the same time. (1) In so far as the
day-fine imposes the same relative burden in its sanction, it should serve to
deter all (non-judgment proof) criminals, regardless of their wealth. (2) Since the
day-fine may be tailored to the offence and the specific circumstances of the
offender, it allows for a greater range of different magnitudes of the fine.
Consequently, the day-fine may achieve marginal deterrence by setting an
increasing penalty amount as a function of the increasing severity. (3) Since
the unit of the daily-fine constitutes only a fraction of the offender’s daily
income, it assures the offender has the capacity to pay the fine.
Consequently, starting from the second half of the twentieth century, this
model has been gaining popularity, and there are already many European
countries and some US jurisdictions that have adopted the day-fines model.
Nevertheless, there is scope to expand the application of this model to other
countries and additional American states.
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Acknowledgments: I would like to thank Michael Faure, Christoph Engel, Louis
Visscher, Paul Mevis, Thomas Ulen and an anonymous reviewer for their valu-
able comments. In addition, I am grateful to the participants of the 1st Topics
Workshop in Criminology at Erasmus University Rotterdam, and faculty semi-
nars at Bologna University and at Erasmus University Rotterdam for their useful
suggestions. Lastly, I would like to express my gratitude to Jaroslaw
Kantorowicz for all his comments and support. All possible mistakes remain,
however, my own.
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