Taxation is only sustainable if the general public complies with it. This observation is uncontroversial with tax practitioners but has been ignored by the public finance tradition, which has interpreted tax constitutions as binding contracts by which the power to tax is irretrievably conferred by individuals to government, which can then levy any tax it chooses. In the absence of an outside party enforcing contracts between members of a group, however, no arrangement within groups can be considered to be a binding contract, and therefore the power to tax must be sanctioned by individuals on an ongoing basis. In this Paper we offer, for the first time, a theoretical analysis of this fundamental compliance problem associated with taxation, obtaining predictions that in some cases point to a re-interpretation of the theoretical constructions of the public finance tradition while in others call them into question.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4210.
Find related papers by JEL classification: H10 - Public Economics - - Structure and Scope of Government - - - General H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General H40 - Public Economics - - Publicly Provided Goods - - - General
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