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Published online by Cambridge University Press: 08 October 2009
If the economist were to accept any kind of political constraint on the tax system as true constraints on economic policy, much of the prescriptive power of welfare analysis would clearly be lost.
Agnar Sandmo (1984, p. 116)Students of political economy make an error in defining their point of departure in such a way that they rule out as illegitimate any political survival strategies. It is analytically misleading … to define the study of political economy in terms of some supposed set of errors in economic policy that are then attributed to politics. … That is, by taking politics as bad compared to some ideal counterfactual policy, we will always discover that policy has been corrupted by politics.
John Woolley (1984, p. 184)Is tax policy improperly limited, or even corrupted, by politics? What is a valid counterfactual for judging tax systems and choices on taxation made by public decision makers? What steps are needed to define the elements and characteristics of a desirable or “good” tax system?
So far we have not directly confronted issues of this nature. Although the concept of Pareto efficiency was introduced in Chapter 4 in connection with the discussion of the Representation Theorem, the previous chapters have focused primarily on the presentation and development of theories that explain the structure of tax systems observed in democratic nations without evaluating outcomes in relation to a particular standard.
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