Fiscal Constitutions

CESifo Working Paper Series No. 223

26 Pages Posted: 16 Feb 2000

See all articles by Hans Gersbach

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: December 1999

Abstract

In this paper we examine how individuals should be treated with respect to taxes, subsidies and agenda setting in constitutions in order to obtain efficient allocations of public goods and to limit tax distortions. We show that if public goods are socially desirable, the simple majority rule as well as taxation constrained to majority winners or a ban on subsidies are second-best constitutions. Equal treatment regarding taxes and subsidies is undesirable. Super majority rules and equal treatment of all citizens with respect to taxes and subsidies, however, is first-best if public goods are socially undesirable. The ex ante expectation of the share and welfare improvements of socially efficient public goods determines which constitution a society will adopt.

Keywords: Incomplete social contracts, constitutions, treatment rules, majority rules

JEL Classification: D70, H41, K12

Suggested Citation

Gersbach, Hans, Fiscal Constitutions (December 1999). CESifo Working Paper Series No. 223. Available at SSRN: https://ssrn.com/abstract=205548

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

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Zurich, 8092
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IZA Institute of Labor Economics

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Germany

CESifo (Center for Economic Studies and Ifo Institute)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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