The Humean Critique of Lump Sum Taxation (or the Implausibility of Pure Lump Sum Taxes in Autocracy) |
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Authors: | Tam Henry |
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Affiliation: | 1. Department of Economics, Texas A&M University, TX, 77843-4228, U.S.A.
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Abstract: | This paper revives Hume's idea that it is unlikely forsovereign governments to implement pure lump-sum taxationbecause lump-sum taxes are arbitrary. We phrase the problem asone of time-inconsistency of tax collection for a tax revenuemaximizing Leviathan government. We demonstrate that whilelump-sum taxation is more efficient than distortionary incometax in terms of the ex ante amount of tax revenueraised, honoring a lump-sum tax is less likely to be crediblethan honoring a distortionary income tax. We also extend theframework to understanding the relationship betweenexpropriation risk and the lack of foreign direct investment. |
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