The Humean Critique of Lump Sum Taxation (or the Implausibility of Pure Lump Sum Taxes in Autocracy)

Henry Tam ()

Public Choice, 2004, vol. 118, issue 1_2, 76 pages

Abstract: This paper revives Hume's idea that it is unlikely for sovereign governments to implement pure lump-sum taxation because lump-sum taxes are arbitrary. We phrase the problem as one of time-inconsistency of tax collection for a tax revenue maximizing Leviathan government. We demonstrate that while lump-sum taxation is more efficient than distortionary income tax in terms of the ex ante amount of tax revenue raised, honoring a lump-sum tax is less likely to be credible than honoring a distortionary income tax. We also extend the framework to understanding the relationship between expropriation risk and the lack of foreign direct investment.

Date: 2004
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