Chapter 8: Majoritarian exploitation of the fiscal commons: general taxes–differential transfers
AbstractDo majoritarian democracies overexploit the general tax base, akin to the tragedy of the commons? Or, apart from any consideration of efficiency norms, are there “natural” forces in majoritarian politics that keep tax rates below revenue-maximizing limits? This paper formulates the fiscal process through the metaphor of the commons and analyzes the equilibrium that emerges in settings where differing majority coalitions may operate simultaneously to place charges on the general taxable capacity of the economy. The presence of a “membership externality,” emergent from the necessary intersections of members among separate majority coalitions, acts to limit fiscal exploitation, even in the pure transfer settings.
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