A public pillory is certainly a dramatic form of punishment. But how effective is it?

The question was on my mind this week as I paged through the State of California’s annual list of individual and corporate taxpayers with the largest delinquent income tax bills. Courtesy of the state’s Franchise Tax Board, we now know exactly how much is owed by Burt Reynolds ($225,008), Dionne Warwick ($2,185,901), and Sinbad (listed as Sinbad Adkins: $2,522,424).

But celebrities are not the only ones being put through the wringer, and California isn’t the only state playing the shame game. More and more jurisdictions are using shame as a way to get businesses to cough up overdue tax payments.

Pennsylvania, for example, started publishing a Web list of delinquent sales tax and employer withholding tax accounts last year. Minnesota maintains an online list of businesses that have had their sales tax permit revoked due to nonpayment or nonfiling of sales tax. The state’s online Wall of Shame helped it collect close to $280,000 in back taxes in its first year of operation, according to a March press release from the Minnesota Department of Revenue.

Nearly one-third of the states run this kind of shaming program, according to a new research paper from Joshua D. Blank, assistant professor of law at Rutgers School of Law-Newark. More worrying, though, for many businesses — especially larger organizations — is the fact that from time to time, federal lawmakers show signs of wanting to jump on the bandwagon. In 2004, for example, the Senate passed legislation that would have required the IRS to publish the names of companies that participated in tax shelters.

That particular law went nowhere (which is not to say that it couldn’t raise its head again.) And that’s just as well, argues Blank, for one simple reason: Shaming doesn’t work.

Or at least it doesn’t work for the type of corporate tax abuse that the federal lawmakers were targeting. In cases of blatant nonpayment of taxes or violation of clear tax rules, public outrage may indeed be strong enough to produce the kind of success that Minnesota has achieved. But in cases that involve massive complexity, mounds of tedious detail, and abstruse argumentation about tax standards — the virtual hallmarks of corporate tax shelters — public reaction may not amount to much more than a shrug. Shaming sanctions, says Blank, “would be unlikely to inflict significant reputational harm on corporate offenders, and, as a result, their deterrence value would be weak.”

Indeed, the shame ploy might backfire. “Short-term investors like hedge and private equity funds may be attracted to, rather than repelled by, corporations with tax directors who claim tax positions that push the envelope,” notes Blank.

On the other hand, I’m sure that for many companies the prospect of increased attention from hedgies and P/E firms would be a more effective deterrent than any amount of “outing” by the IRS, and reason enough to make sure that you don’t get a reputation for taking overly aggressive tax positions. ###