tax policy as if humans really mattered: micro-based tax theory

• assumption

  • state has first claim on income of all citizens

  • individual citizens has first claim on rightfully-earned income

• optimal tax policy

  • elevation of the collective over the individual

  • elevation of the individual over the collective

    • individuals engage in voluntary trade → best use of resources

    • “taxation is theft”

historical development

• modern experiments with representative democracy

• 21st century democracy: relentless growth of State

• divergent orientations of tax policy from 19th century

  • Adolph Wagner (wagner’s law)

    • macro orientation: primacy of collective over individual

  • Knut Wicksell (Wicksell criteria and Wickselll equilibrium")

Wagner’s Law

• Adolph Wagner and macro-orientation of tax policy

  • assertion that economic growth leads to an increased demand for growth of State

• modern mainstream economists and macro-orientation

  • state use taxation and redistribution to resolve social conflict and expand political power base

  • ignore feedback effects on revenues from financing

  • tax reform should be neutral

• adolph wagner and macro perspective of tax policy

  • macro perspective of tax policy focused on state

  • governments should intervene to resolve social conflict using taxation and redistribution

  • feedback effects on revenues from method of financing ignored

  • european welfare states pursue shorot term tax policies to balance equity-efficiency

    • long term tax burden rose to 40-50% of GDP