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Tax in the Cathedral: Property Rules, Liability Rules, and Tax

65 Pages Posted: 20 Mar 2013 Last revised: 30 Jul 2014

Andrew Blair-Stanek

University of Maryland Francis King Carey School of Law

Date Written: September 24, 2013

Abstract

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.

Keywords: property rule, liability rule, the cathedral, Calabresi, Melamed, law and economics, tax, taxation, tax status, IRS, tax law

JEL Classification: H2, H21, K34

Suggested Citation

Blair-Stanek, Andrew, Tax in the Cathedral: Property Rules, Liability Rules, and Tax (September 24, 2013). Virginia Law Review, Vol. 99, 2013; U.Md. LSRP 2013-19. Available at SSRN: https://ssrn.com/abstract=2235236

Andrew Blair-Stanek (Contact Author)

University of Maryland Francis King Carey School of Law ( email )

500 West Baltimore Street
Baltimore, MD 21201-1786
United States

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