An Exploratory Essay
Chapter 6: Revenue Extraction: Crossing the Tax–Expenditure Divide
Any enterprise, whether organized in the market square or in the public square, originates in an entrepreneurial vision. For that enterprise to be successful, it must develop organizational arrangements that facilitate eﬀective team production. A vital component of this is the ability to generate revenues suﬃcient to keep the team intact when resource owners are free to shift their resources to other teams. Political enterprises must generate suﬃcient revenues to cover the cost of providing their services. That cost, moreover, includes both the cost of labor and capital inputs and also a return to entrepreneurial sponsors. After all, covering cost and maximizing proﬁt are just two ways of saying the same thing, for enterprises organized on the public square as well as for those organized on the market square. Much of the revenue to support political enterprises comes from taxation, whereas market-based enterprises mostly derive their revenues directly from consumers through prices. This distinction concerning sources of revenue and forms of enterprise, however, is a matter of degree and not something categorical. Many political enterprises derive some of their revenues directly from prices that customers pay. For instance, a politically organized park might charge admission fees; alternatively, a governmental agency might sell its publications. Moreover, a good number of market-based enterprises derive signiﬁcant revenue from taxation: any market-based enterprise that contracts with a political enterprise does so. For most revenues, however, the appropriation of tax revenue is the prime source for political enterprises while it...
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