Political Profit: Taxing and Spending in the Hierarchical State

. The actions of government fall into two types: taxes (the taking of property) and expenditures (the awarding of gifts). Politicians profit as long as the value of resources raised from taxation exceeds the cost of expenditures. From their point of view, fiscal efficiency consists in maximizing the support obtained by spending and minimizing the opposition generated by taxing. This is accomplished by spending on well‐organized groups and taxing the uninformed public. This results in the “iron law of political redistribution” in which income and wealth are transferred from the latter to the former. In a hierarchical State, it is usually profitable for those at the top to centralize control over taxing and spending, if for no other reason than to make it difficult for politicians at lower levels to compete against them. This gives rise to the “law of hierarchical centralization”—in a hierarchical State, power becomes centralized over time. The greater the power of government, the faster this process takes place. In order to avoid this problem, one could design constitutions which are non‐hierarchical in nature, in which each unit of government is completely autonomous from the others, as firms are in a free market.