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The rule of law and sustainability of the constitution: The case of tax evasion

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  • Naqvi, Nadeem
  • Neumärker, Bernhard
  • Pech, Gerald

Abstract

Why do rulers play by the rules? We show that the legality requirement under the rule of law implements an endogenous enforcement mechanism supporting constitutionality. Agents which do not obey unconstitutional legal norms are not sanctioned under constitutional rule. A principal who defects from the constitution but cannot commit himself to never reinstall the constitution finds law enforcement more difficult. As more agents disobey, enforcement becomes less effective. The expectation of an eventual return to constitutionality becomes self-fulfilling. We show this mechanism to be effective in deterring a government from violating constitutional norms. --

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Bibliographic Info

Paper provided by University of Freiburg, Department of Economic Policy and Constitutional Economic Theory in its series The Constitutional Economics Network Working Papers with number 01-2012.

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Date of creation: 2012
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Handle: RePEc:zbw:cenwps:012012

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Keywords: constitution; dynamic policy constraints; tax evasion; global games;

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  1. Roland, Gerard & Verdier, Thierry, 2003. "Law enforcement and transition," European Economic Review, Elsevier, Elsevier, vol. 47(4), pages 669-685, August.
  2. Philippe Aghion & Alberto Alesina & Francesco Trebbi, 2002. "Endogenous Political Institutions," NBER Working Papers 9006, National Bureau of Economic Research, Inc.
  3. David M. Frankel & Stephen Morris & Ady Pauzner, 2001. "Equilibrium Selection in Global Games with Strategic Complementarities," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1336, Cowles Foundation for Research in Economics, Yale University.
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  5. Voigt, Stefan, 1997. " Positive Constitutional Economics: A Survey," Public Choice, Springer, Springer, vol. 90(1-4), pages 11-53, March.
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  7. V. V. Chari & Patrick E. Kehoe, 1990. "Sustainable Plans and Mutual Default," IMF Working Papers 90/22, International Monetary Fund.
  8. Frank Heinemann, 2000. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 316-318, March.
  9. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 1(3-4), pages 323-338, November.
  10. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(2), pages 179-221, May.
  11. Avinash Dixit & Gene M. Grossman & Faruk Gul, 2000. "The Dynamics of Political Compromise," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(3), pages 531-568, June.
  12. Hans Gersbach, 2004. "Why one person one vote?," Social Choice and Welfare, Springer, Springer, vol. 23(3), pages 449-464, December.
  13. Barry R. Weingast, 2005. "The Constitutional Dilemma of Economic Liberty," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 89-108, Summer.
  14. Kolm, Serge-Christophe, 1973. "A note on optimum tax evasion," Journal of Public Economics, Elsevier, Elsevier, vol. 2(3), pages 265-270, July.
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