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The Uneasy Case for the Flat Tax

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Author Info
Francis Buckley (George Mason Law School)
Eric Rasmusen (Indiana University, Kelley School of Business)

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Abstract

There is a secret paradox at the heart of social contract theories. Such theories assume that, because personal security and private property are at risk in a state of nature, subjects will agree to grant Leviathan a monopoly of violence. But what is to prevent Leviathan from turning on his subjects once they have lain down their arms? If Leviathan has the same incentives as his subjects in the Hobbesian state of nature, he will plunder them more thoroughly than ever they plundered themselves in the state of nature. Thus the social contract always leaves subjects worse off, unless Leviathan can fetter himself. And how can Leviathan bind himself, if he can always impose confiscatory taxes or choke off trade through inefficient regulations? This Article suggests that schemes of progressive taxation, in which marginal tax rates increase with taxable income, may be seen as a useful incentive strategy to bribe Leviathan from imposing inefficient regulations. Income taxes give Leviathan an equity claim in his state's economy, and progressive taxes give him a greater residual interest in upside payoffs. Leviathan will then demand a higher side payment from interest groups to impose value- destroying regulations. Of course, progressive taxation imposes its own incentive costs, by reducing the subject's private gains. However, these costs must be balanced against the gains from correcting Leviathan's misincentives, and it may that such gains exceed the costs of progressive taxation.

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Paper provided by EconWPA in its series Public Economics with number 9907003.

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Date of creation: 13 Jul 1999
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Handle: RePEc:wpa:wuwppe:9907003

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Related research
Keywords: flat tax Hobbes political economy Leviathan regulation mandates constitutions progressive taxation

Find related papers by JEL classification:
H00 - Public Economics - - General - - - General
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
P00 - Economic Systems - - General - - - General

References listed on IDEAS
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    Other versions:
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  16. John E. Roemer, 1997. "The Democratic Political Economy of Progressive Income Taxation," Discussion Papers 97-03, University of Copenhagen. Department of Economics.
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  17. Rasmusen, Eric B & Zupan, Mark A, 1991. " Extending the Economic Theory of Regulation to the Form of Policy," Public Choice, Springer, vol. 72(2-3), pages 167-91, December.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. J. Mark Ramseyer & Eric B. Rasmusen, 2001. "When are Judges and Bureaucrats Left Independent? Theory and History from Imperial Japan, Postwar Japan, and the United States," CIRJE F-Series CIRJE-F-126, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
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