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16 Const. Pol. Econ. 5 (2005)

handle is hein.journals/constpe16 and id is 1 raw text is: Constitutional Political Economy, 16, 5-30, 2005. - © 2005 Springer Science+Business Media, Inc. Printed in The Netherlands. Judges and Taxes: Judicial Review, Judicial Indepen- dence and the Size of Government GEORGE TRIDIMAS GTridimas@aol.com School of Economics and Politics, University of Ulster, Shore Road, Newtownabbey Co. Antrim, BT37 OQB Abstract. The study investigates how judicial review of policy and judicial independence affect the relative size of government. Judicial oversight of policy is the authority of courts to check the legality of policy measures and annul measures which are incompatible with the constitution or are enacted without fol- lowing the procedures laid down by the law. Using a model of constitutional political economy, where policy making is subject to judicial oversight, it is predicted that the relative size of the public sector decreases as judicial review and judicial independence increase. The theoretical predictions are tested in an international cross section sample of 52 countries. Controlling for the effects of real income, age depen- dency, openness of the economy, the legal origins of a country and other socio-political variables the results show that the checks and balances provided by the judiciary lead to a smaller relative size of taxes in the economy. JEL classification: D70, D72, D74, D78, H30, K41. Key words: size of government, taxation, judicial review, judicial independence 1. Introduction The application of the rule law is essential for the prosperity of market economies and the welfare of citizens. A cornerstone of the rule of law is that courts enforce policy measures passed by the legislature and oversee the actions of both the legis- lative and the executive branches of government. Judicial review of policy, which examines the legality of policy measures passed by the legislature and enacted by the executive branch of government, has always been political in nature as it is con- cerned with the limits of lawful government and what the political authorities can and cannot do within the provisions of the constitutional arrangements of a country. Further, an independent judiciary fulfils its functions without regard to the identity of the litigants, be they private or public agents. The present study investigates analytically and empirically whether and how judicial review of policy and judicial independence affect the relative size of government. Judicial oversight of policy, which is part of the collective choice mechanism, may restrain government actions and therefore affect the size of resources taken up by the government. Despite the obvious relevance of the question to the size of government, the issue has been largely ignored in the literature. Using the perspective of political economy the paper explores a model of the influence of the judiciary on economic policy making and the size of tax revenue. In its empirical inquiry the study uses the indices of judicial

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