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The Role of Beliefs for the Sustainability of the Fiscal Constitution

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  • Neumärker, Karl Justus Bernhard
  • Pech, Gerald

Abstract

Why does the government not defect from the constitution? This article focuses on the dynamic restraints the government faces under the rule of law: violations against unconstitutional laws are not punished under the constitution. If a violating government cannot commit itself never to reinstall the constitution enforcing an unconstitutional law becomes difficult. Citizens? expectations to go unpunished when not complying may be self-fulfilling. Deriving the equilibrium of a global game we show that this mechanism is effectively deterring a government from defecting from a constitutionally permissible tax rate. --

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Bibliographic Info

Paper provided by Saarland University, CSLE - Center for the Study of Law and Economics in its series CSLE Discussion Paper Series with number 2003-01.

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Date of creation: 2003
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Handle: RePEc:zbw:csledp:200301

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Keywords: tax evasion; global games; selffulfilling expectations; dynamic policy restraints;

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  1. Kotlikoff, Laurence J & Persson, Torsten & Svensson, Lars E O, 1988. "Social Contracts as Assets: A Possible Solution to the Time-Consistency Problem," American Economic Review, American Economic Association, American Economic Association, vol. 78(4), pages 662-77, September.
  2. 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.
  3. Kolm, Serge-Christophe, 1973. "A note on optimum tax evasion," Journal of Public Economics, Elsevier, Elsevier, vol. 2(3), pages 265-270, July.
  4. Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1687, C.E.P.R. Discussion Papers.
  5. Hyun Song Shin & Stephen Morris, 1998. "A Theory of the Onset of Currency Attacks," Economics Series Working Papers, University of Oxford, Department of Economics 1998-W20, University of Oxford, Department of Economics.
  6. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(3), pages 797-817, August.
  7. Alm, James & McKee, Michael, 2004. "Tax compliance as a coordination game," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 54(3), pages 297-312, July.
  8. Hans Carlsson & Eric van Damme, 1993. "Global Games and Equilibrium Selection," Levine's Working Paper Archive 122247000000001088, David K. Levine.
  9. Miller, Merton, 1998. "Asian financial crisis," Japan and the World Economy, Elsevier, Elsevier, vol. 10(3), pages 355-358, July.
  10. 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.
  11. V.V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans," Staff Report, Federal Reserve Bank of Minneapolis 122, Federal Reserve Bank of Minneapolis.
  12. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  13. 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.
  14. K.J. Bernhard Neumaerker & Gerald Pech, 2001. "Why Does the Government Obey the Constitution? Theory and Application to Tax Evasion," CRIEFF Discussion Papers, Centre for Research into Industry, Enterprise, Finance and the Firm 0113, Centre for Research into Industry, Enterprise, Finance and the Firm.
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