The Uneasy Case for the Flat Tax
32 Pages Posted: 26 Jul 1999
There are 2 versions of this paper
The Uneasy Case for the Flat Tax
Date Written: July 13, 1999
Abstract
Social contract theories assume that because personal security and private property are at risk in a state of nature, citizens will agree to grant Leviathan a monopoly of violence. But what is to prevent Leviathan from turning on his citizens once they have lain down their arms? The social contract leaves citizens worse off unless Leviathan can fetter himself, as constitutional democracies seek to do. Self-binding fetters are hard to find. We suggest that schemes of progressive taxation, in which marginal tax rates increase with taxable income, may be useful incentives to realign Leviathan?s incentives with those of his citizens. Income taxes give Leviathan an equity claim in his state?s economy, and progressive taxes give him a greater residual interest in upside payoffs. Leviathan will then demand higher side payments from interest groups before he imposes value-destroying regulations.
Note: A revised version of this working paper is forthcoming in Constitutional Political Economy
JEL Classification: H00, H11, H21, H50, L50, L51, P00
Suggested Citation: Suggested Citation
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