The power to tax, 33 years later

Abstract

The basic puzzle about the power to tax is how to limit the capacity of government to exploit taxpayers, while at the same time not overly hampering the government in going about its useful activities. Standard economics fondly believes that it is giving advice to benevolent despots as to how to collect a given target of tax revenue at the least possible harm to the size of the economic pie. The constitutional political economy approach of Geoff Brennan and Jim Buchanan showed that that very same advice is exactly what the non-benevolent government wants to hear in its efforts to maximise tax revenue. Brennan and Buchanan were concerned about excessive exploitation of taxpayers in the large; standard economics is concerned with second-order small triangles of economic inefficiency; government is concerned about the size of first-order revenue rectangles: and so should we be.