Kurt Wickman writes:
> The Laffer curve is probably the best macro approach to tax analysis around
> (though it should rightly be called "the Ibn Khaldoun-curve", but
> nevertheless). But being macro it hides more than it shows. I have tried to
> make the Swedish economict Knut Wicksell come alive to renew the tax
> discussion with his micro approach. The basic assumption is very simple:
> only a tax system that respects the normal market criterion ("the
> individual pays the tax that is equal in value to his consumption of public
> goods over the long term") can gain long-term stability. This is, I think,
> the most fruitful (maybe axiomatic) start for more developed tax
> discussions. The view has a good conceptual depth. For one thing, as soon
> as you add in reaction equations ("an individual observes that he is
> over-taxed and adjusts his tax burden (through tax planning, evasion or
> something else") you can derive a Laffer-type adjustment. But you will be
> able to say much more about the adjustment patterns than Laffer ever did.
Doesn't this ignore the free-rider problem? That is, if the
individual observes that he can adjust his tax burden downward without
substantially affecting his own consumption of public goods, wouldn't
he do it anyway, even if it would bring his tax burden below his
consumption of public goods?
The problem here is that while the criteria you state ("the individual
pays the tax that is equal in value to his consumption of public goods
over the long term") is "fair," if the individual's consumption of
public goods is not actually dependent on how much tax he pays, he
will still have an incentive to reduce his tax burden as much as
possible and increase his consumption of public goods as long as his
marginal utility from public goods is greater than zero, regardless of
whether his tax burden is more, less, or the same as his consumption
of public goods.
Of course, if everyone successfully reduces his tax burden (and
budgets must in some sense balance) then this reduces the total
production of public goods. But this is just another version of the
prisoner's dilemna problem.
--Robert Book
[EMAIL PROTECTED]
