Let's assume that your system will somehow magically work. People have a lot of negative comments, but let's assume that 100% of your society is deluded enough to believe this is just as fair as the death sentence, or jail time.

Now let's consider the primary concepts here:

When doing a background check criminal behavior that any immediate relative has done will appear on yours.

Alright. That seems odd, but as long as it isn't presented in a misleading way (such as the record saying you committed the crime), I don't see anything wrong with it appearing. Let's be realistic here. The issue is how people use such a record.

Now you say people get tax breaks for employing people with decent records, right? So what? AS many answers point out there are only so many people with "good records" in your system. People will just have normal taxes. After all, such a break doesn't naturally occur.

So now let's amp up your system. Let's say it is illegal to hire people for certain skilled jobs or train them in a university if they have a criminal record. Fine then. Not everyone in the world gets a skilled job. They get a skilled job and avoid criminal behavior. Then they know with certainty that their children will be allowed to go to a university and get a skilled job.

All your system does is extend the "unskilled labor" generated by criminals ordinarily not getting jobs into another generation.

Your system is sorta successful barring a logical fallacy.

It deters the children of criminals or relatives of criminals from being criminals. Why? Well think of it this way. Society states that people directly related to criminals get punished severely and they're part of that group. Maybe they decide that they don't want that for their children. So their logic is to try and break the cycle by getting their family to not commit any crimes.

The fallacy is that one assumes people would otherwise commit crimes if they were directly related to criminals.

Finally as a note towards the utter collapse of the country.... I don't see that it has to. There's nothing forcing people to lose jobs and whatnot. Just a loss of tax breaks for companies. If people are vital enough to a business, they won't be fired. Plus, you say that the crimes will actually be listed and not just a general "criminal relative" stamp. Therefore, depending on the severity of the crime your system might actually punish relatives in the same manner criminals might be punished. Minor vandalism from teenage years might not be as heavily punished when an adult. It isn't that way now in real life, so why should it be in your civilization?

Therefore, while your law is weird and insane, I see no reason why society would collapse and stop functioning. I also think it won't work as a deterrent towards the original criminals. However, it will breed a generation of people desiring to not be criminals so as to allow future generations to have skilled labor.

Let's assume that your system will somehow magically work. People have a lot of negative comments, but let's assume that 100% of your society is deluded enough to believe this is just as fair as the death sentence, or jail time.

Now let's consider the primary concepts here:

When doing a background check criminal behavior that any immediate relative has done will appear on yours.

Alright. That seems odd, but as long as it isn't presented in a misleading way (such as the record saying you committed the crime), I don't see anything wrong with it appearing. Let's be realistic here. The issue is how people use such a record.

Now you say people get tax breaks for employing people with decent records, right? So what? AS many answers point out there are only so many people with "good records" in your system. People will just have normal taxes. After all, such a break doesn't normally occur in real life.

So now let's amp up your system. Let's say it is illegal to hire people for certain skilled jobs or train them in a university if they have a criminal record. Fine then. Not everyone in the world gets a skilled job. They get an unskilled job (such as a supermarket clerk) and avoid criminal behavior. Then they know with certainty that their children will be allowed to go to a university and get a skilled job.

All your system does is extend the "unskilled labor" generated by criminals ordinarily not getting jobs into another generation.

Your system is sorta successful barring a logical fallacy.

It deters the children of criminals or relatives of criminals from being criminals. Why? Well think of it this way. Society states that people directly related to criminals get punished severely and they're part of that group. Maybe they decide that they don't want that for their children. So their logic is to try and break the cycle by getting their family to not commit any crimes.

The fallacy is that one assumes people would otherwise commit crimes if they were directly related to criminals.

Finally as a note towards the utter collapse of the country.... I don't see that it has to. There's nothing forcing people to lose jobs and whatnot. Just a loss of tax breaks for companies. If people are vital enough to a business, they won't be fired. Plus, you say that the crimes will actually be listed and not just a general "criminal relative" stamp. Therefore, depending on the severity of the crime your system might actually punish relatives in the same manner criminals might be punished. Minor vandalism from teenage years might not be as heavily punished when an adult. It isn't that way now in real life, so why should it be in your civilization?

Therefore, while your law is weird and insane, I see no reason why society would collapse and stop functioning. I also think it won't work as a deterrent towards the original criminals. However, it will breed a generation of people desiring to not be criminals so as to allow future generations to have skilled labor.