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The Role of Beliefs for the Sustainability of the Fiscal Constitution

  • Gerald Pech
  • Bernhard Neumaerker

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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Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 0213.

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Date of creation: Feb 2002
Date of revision:
Handle: RePEc:san:crieff:0213
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  1. Carlsson, H. & Van Damme, E., 1990. "Global Games And Equilibrium Selection," Papers 9052, Tilburg - Center for Economic Research.
  2. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  3. K.J. Bernhard Neumaerker & Gerald Pech, 2001. "Why Does the Government Obey the Constitution? Theory and Application to Tax Evasion," CRIEFF Discussion Papers 0113, Centre for Research into Industry, Enterprise, Finance and the Firm.
  4. V. V. Chari & Patrick J. Kehoe, 1989. "Sustainable plans," Staff Report 122, Federal Reserve Bank of Minneapolis.
  5. 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, vol. 78(4), pages 662-77, September.
  6. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  7. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  8. Morris, S. & Shin, H.S., 1998. "A Theory of the Onset of Currency Attacks," Economics Papers 149, Economics Group, Nuffield College, University of Oxford.
  9. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium selection in global games with strategic complementarities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 1-44, January.
  10. Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
  11. Miller, Merton, 1998. "Asian financial crisis," Japan and the World Economy, Elsevier, vol. 10(3), pages 355-358, July.
  12. Alm, James & McKee, Michael, 2004. "Tax compliance as a coordination game," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 297-312, July.
  13. Frank Heinemann, 2000. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment," American Economic Review, American Economic Association, vol. 90(1), pages 316-318, March.
  14. Kolm, Serge-Christophe, 1973. "A note on optimum tax evasion," Journal of Public Economics, Elsevier, vol. 2(3), pages 265-270, July.
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