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Although coercion is a fundamental and unavoidable part of our social lives, economists have not offered an integrated analysis of its role in the public economy. The essays in this book focus on coercion arising from the operation of the fiscal system, a major part of the public sector. Collective choices on fiscal matters emerge from and have all the essential characteristics of social interaction, including the necessity to force unwanted actions on some citizens. This was recognized in an older tradition in public finance which can still serve as a starting point for modern work. The contributors to the volume recognize this tradition, but add to it by using contemporary frameworks to study a set of related issues concerning fiscal coercion and economic welfare. These issues range from the compatibility of an open access society with the original Wicksellian vision to the productivity of coercion in experimental games.
Abstract - Omission of collective choice prevents the analyst from understanding the central role of political equilibrium. To create a framework that places tax policies in a broader equilibrium context we must model the underlying collective allocation mechanism and use it as a starting point, whether we do empirical work explaining observed features of tax systems or whether we engage in research on tax efficiency. A broader perspective of this nature also forces us to re-examine well-known concepts, such as tax expenditures, flat taxation, and the marginal efficiency cost of public funds, and to question and reinterpret some of the conclusions that have been reached in the literature related to these concepts.
Omission of collective choice analysis causes us to miss a concept that is fundamental to the understanding of taxation, namely, political equilibrium. Outcomes in the public sector are a consequence of the balancing of political forces taking place in the context of resource use in both the private and the public economy. If this is acknowledged, we must create an explicit link between collective choice mechanisms describing political equilibrium and the determination of tax policies.
We show in this paper how the perspective on tax research is changed if such a broader approach is adopted. We start by considering collective allocation mechanisms that can serve as a basis for positive tax analysis. This is followed by a discussion of how an explicit acknowledgment of political equilibrium affects the normative evaluation of tax systems and tax policy proposals.
The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare – all this and more is written in its fiscal history, stripped of all phrases.
Joseph Schumpeter (1918, p. 101)
Writing history is constructing a coherent story of some facet of the human condition through time. Such a construction exists only in the human mind. We do not recreate the past; we construct stories about the past. But to be good history, the story must give a consistent, logical account and be constrained by the available evidence and the available theory.
Douglass North (1990, p. 131)
More than eight decades ago, Joseph Schumpeter (1918) published an outstanding essay on the fiscal state. He argued that the ability to tax lies at the very heart of political power and that the rise of the modern political state was shaped by fiscal evolution in medieval and postmedieval times. Although he was primarily interested in the influence of fiscal power on political power, he also raised a related set of questions about what forces shape fiscal structure itself. He clearly recognized that revenue systems consist of a number of related components chosen in the light of three types of influences: economic, political, and administrative. But he did not provide a framework of how these factors interact to shape evolving revenue systems, perhaps because he had not yet formed an economic theory of political action.