Why Does the Government Obey the Constitution? Theory and Application to Tax Evasion

K.J. Bernhard Neumaerker and Gerald Pech

No 113, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: Under a constitution, which establishes a state under the rule of law, violations of unconstitutional laws are not punished. We argue that this is the true strength of the constitution. In our model, citizens decide on whether or not to evade taxes. For this they have to infer their probability of getting fined. The belief that - after the government defected once - a switch back to the constitution occurs is shown to be self-fulfilling in a game with imperfectly observable reliability of the government. We show that this prospect can deter even an unwilling government from defecting at the outset.

Keywords: tax evasion; credibility; constitution; self-fulfilling expectations (search for similar items in EconPapers)
JEL-codes: D7 H26 K42 (search for similar items in EconPapers)
Date: 2001-02
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:0113

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