Taxation has been a major subject of comment and analysis throughout history. It is not difficult to understand the source of this widespread attention. Taxes directly affect the daily lives of individual citizens while also providing “the sinews of state,” as pointed out long ago by the Roman writer Cicero. They give the government access to private economic resources and make possible the provision of essential public services, such as defense, police protection, and the enforcement of property rights through the courts. Their imposition influences the distribution of personal income and may alter the division of wealth among different groups. How a society employs taxation reveals much about the relation between its citizens and the state, and thus defines an important part of the nation's character.

Economists have made many contributions to the study of taxation and fiscal choices. Although our analysis falls into this broad tradition, it also represents a new departure.