Of Rule and Revenue

California Series on Social Choice and Political Economy

by Margaret Levi

Margaret Levi's wide-ranging theoretical and historical study demonstrates the importance of political relative to economic factors in accounting for revenue production policies.

Genres: Political Science, Economics, Politics

264 pages, Paperback

First published January 1, 1988

Reviews

[Colin · Rating 4 out of 5]

This book takes a fairly formal theoretical structure, although its case study histories on Roman use of tax farming and the comparative taxation experiences of Britain and France are quite interesting (the Australian case study on fiscal federalism and tax avoidance was, frankly, too dense for me to really engage with). The core theoretical argument is clear and I think fairly intuitive: state rulers seek to maximize revenues but are constrained in their choices by the transaction costs imposed by various tax mechanisms, by the relative bargaining power of the constituencies with whom they interact and seek to tax, and by their perception of the urgency facing them in acquiring revenue by any means necessary versus accepting a lower but less disruptive return (discount rate).

The key takeaway for Levi is that, while a certain level of administrative and technological capacity serve are prerequisites, states are really only able to effectively develop robust and intrusive tax mechanisms (like the income tax) when they have achieved a level of "quasi-voluntary compliance" on the part of their constituents - i.e., people following the law because they generally accept it as legitimate, not just because of enforcement / coercion threats.

While I'm not entirely sure the argument fully unpacks the potential sources of quasi-voluntary compliance, the main conclusion is that it comes from constituent / taxpayers' assurance that their contributions will result in collective goods from which they will benefit. This generally requires some sort of credible commitment on the part of the ruler that they will spend funds how they say they will, and some level of representative government to give taxpayers a say in how funds are spent. Taxpayers also seek assurances that the system is relatively "fair" and that others' free riding will not be so extreme that they wind up paying the full costs for others' benefit - so situations where tax avoidance and evasion are known to be very high can potentially lead into serious vicious circles.

Thus, the argument goes, even though French kings had greater central power relative to their nobility than the English did theirs, the creation of an English parliament and the regular bargaining that took place there ultimately served to create a semi-representative body that, when it did agree to new taxes, accepted them with less complaint because they had a say in how things would be spent. The English rulers took on new constraints but were ultimately able to generate more revenue out of it.

While I think that there is potentially still a lot to be said for the particulars of how constituents bargain with rulers over taxation on a case by case basis, this is a useful overall framework for thinking about the issue.

[Will · Rating 3 out of 5]

Levi asserts that state is able to exert its strength through its ability to raise revenue from the civilian population. Though the state might rely on ideology or outright coercion, they two methods are unreliable and expensive respectively. Instead, the state must enforce a system of quasi-voluntary compliance, in which most people [a taxes voluntarily with only some punished for non-compliance. The system is based on credible commitment from the government (that it will spend its acquired revenue on certain things, or will cease collecting taxes at a certain point) as well as the belief in those paying the tax that others are paying it as well.