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Firstly, note that with a concave taxschedule, the tax burden rises relatively steeply when pollution levels are low.
In the first period the government sets the policy instruments (that is, the emission taxschedule, penalty for underreporting emissions, and the audit schedule).
The slowly rising taxschedule is thus a consequence of the truth telling constraint in the welfare maximization problem.
It is shown that truthtelling requires a taxschedule that rises at a decreasing rate (that is, is concave) in emissions.
In other words, the optimal taxschedule is then very favorable to the hardworking poor.
Thus, a low polluter (who faces the more steeply rising segment of the taxschedule) is deterred from underreporting because of the higher audit rates.
This is not just a question of the alteration of a taxschedule, or the alteration of the articles in a taxschedule.
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