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

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

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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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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  1. Roland, G. & Verdier, T., 2000. "Law Enforcement and Transition," DELTA Working Papers 2000-25, DELTA (Ecole normale supérieure).
  2. 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.
  3. 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.
  4. Philippe Aghion & Alberto Alesina & Francesco Trebbi, 2004. "Endogenous Political Institutions," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 565-611, May.
  5. V. V. Chari & Patrick E. Kehoe, 1990. "Sustainable Plans and Mutual Default," IMF Working Papers 90/22, International Monetary Fund.
  6. V. V. Chari & Patrick J Kehoe, 1998. "Sustainable Plans," Levine's Working Paper Archive 600, David K. Levine.
  7. Avinash Dixit & Gene M. Grossman & Faruk Gul, 2000. "The Dynamics of Political Compromise," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 531-568, June.
  8. Voigt, Stefan, 1997. " Positive Constitutional Economics: A Survey," Public Choice, Springer, vol. 90(1-4), pages 11-53, March.
  9. Hans Gersbach, 2004. "Why one person one vote?," Social Choice and Welfare, Springer, vol. 23(3), pages 449-464, December.
  10. 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.
  11. Barry R. Weingast, 2005. "The Constitutional Dilemma of Economic Liberty," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 89-108, Summer.
  12. 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.
  13. Kolm, Serge-Christophe, 1973. "A note on optimum tax evasion," Journal of Public Economics, Elsevier, vol. 2(3), pages 265-270, July.
  14. 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.
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