The Uneasy Case for the Flat Tax
F. H. Buckley
George Mason University School of Law
Eric Bennett Rasmusen
Indiana University - Department of Business Economics & Public Policy
July 13, 1999
Indiana University, Business Economics and Public Policy Working Paper No. 99.002; and George Mason Law & Economics Working Paper No. 00-10
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
Number of Pages in PDF File: 32
JEL Classification: H00, H11, H21, H50, L50, L51, P00working papers series
Date posted: July 26, 1999
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