Tax in the Cathedral: Property Rules, Liability Rules, and Tax
University of Maryland Francis King Carey School of Law
September 24, 2013
Virginia Law Review, Vol. 99, 2013
U of Maryland Legal Studies Research Paper No. 2013-19
The distinction between property rules and liability rules has revolutionized our understanding of many areas of law. But scholars have long assumed that this distinction has no relevance to tax law. This assumption is flatly wrong. Tax law currently uses both property rules and liability rules, and the choice between them has real consequences. When a taxpayer violates a requirement for a favorable tax status, tax law either imposes additional tax proportionate to the harm (a liability rule) or imposes the draconian penalty of taking away the tax status entirely (a property rule). This recognition has three key implications. First, Congress can and should draw on the rich property and liability rule literature to draft better tax legislation and to reform the tax code. Second, novel variations on property and liability rules can be used to rethink the remedies given to the IRS. Third, tax law will enrich the literature on property and liability rules across many other areas of law.
Number of Pages in PDF File: 65
Keywords: property rule, liability rule, the cathedral, Calabresi, Melamed, law and economics, tax, taxation, tax status, IRS, tax law
JEL Classification: H2, H21, K34Accepted Paper Series
Date posted: March 20, 2013 ; Last revised: November 8, 2013
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