The Role of Beliefs for the Sustainability of the Fiscal Constitution

Gerald Pech and Bernhard Neumaerker

No 213, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: Why does the government not defect from the constitution? This article focuses on the dynamic restraints the government faces under the rule of law: violations against unconstitutional laws are not punished under the constitution. If a violating government cannot commit itself never to reinstall the constitution enforcing an unconstitutional law becomes difficult. Citizens' expectations to go unpunished when not complying may be self-fulfilling. Deriving the equilibrium of a global game we show that this mechanism is effectively deterring a government from defecting from a constitutionally permissible tax rate.

Keywords: tax evasion; global games; self-fulfilling expectations; dynamic policy restraints (search for similar items in EconPapers)
JEL-codes: D7 E61 H26 K42 (search for similar items in EconPapers)
Date: 2002-02
New Economics Papers: this item is included in nep-law and nep-mac
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