About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

15 Const. Pol. Econ. 3 (2004)

handle is hein.journals/constpe15 and id is 1 raw text is: Constitutional Political Economy, 15, 3-25, 2004. ©$ © 2004 Kluwer Academic Publishers. Printed in The Netherlands. Fiscal Constitutions HANS GERSBACH'2 gersbach@uni-hd.de Alfred-Weber-Institut, University of Heidelberg, Grabengasse 14, 69117 Heidelberg, Germany Abstract. In this paper we examine how taxes, subsidies and the design of constitutional agendas should be regulated in order to allow for an efficient allocation of public goods and a limitation of tax distortions. We show that if public goods are socially desirable, the simple majority rule, combined with taxation constrained to majority winners or a ban on subsidies, can achieve several desirable objectives. Equal treatment regarding taxes and subsidies is undesirable. Super majority rules and equal treatment of all citizens with respect to taxes and subsidies, however, are first-best provided public goods are socially undesirable. Finally, we suggest that constitutions with amendments eliminate excessive taxation and allow treatment rules to universally improve welfare. JEL classification: D70, H41, K12. Keywords: incomplete social contracts, constitutions, treatment rules, majority rules 1. Introduction In this paper we develop constitutional principles for democracies which dictate the treatment of individuals in the case of provision of public goods and financing decisions. Democratic constitutions allow equal voting and agenda rights for all citizens. At the same time they should ensure that socially valuable public goods are provided. Socially undesirable public goods and tax/subsidy proposals for solely redistributive purposes creating dead weight losses should not be adopted. This must hold regardless of whether or not the individual who has the power to set the agenda benefits from the public good. In order to meet these objectives, we examine the design of constitutions involving decision rules and treatment rules with respect to taxes and subsidies. At the constitutional stage, a society decides how public goods provision and financing should be governed in the legislative periods under a veil of ignorance. Individuals do not know at the constitutional stage whether they will benefit from the public good. Beneficiaries at the legislative stage are called project winners. Those individuals who suffer from the public good are called project losers. In some cases, the set of project losers may be empty. In other cases, public goods or more general public projects may affect part of the society negatively. Examples of the latter category are the downsizing of the defense industry after the end of the cold war, labor market reforms that put pressure on wages for some workers and even the construction of roads, which disturb nearby residents. A priori there is no reason to assume that there are no project losers. The constitutional principles in this paper must obey the liberal democracy's fundamental principles of equal voting and agenda rights. Moreover, constitutional

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most