Tuesday
Sep232014

Taxation vs. Expropriation

What’s the difference between a 50% marginal tax rate on income vs. 50% expropriation by a kleptocratic ruler or corrupt officials? Some models might suggest that they are the same, though their “legitimacy” seems to be very different. Despite some grumbling, most citizens of Western democracies (with the notable exception of Tea Party supporters in the United States) are happy with marginal tax rates around 50% or sometimes above, but few businessmen in sub-Saharan Africa or South Asia can be found to sing the praises of similar rates of expropriation or corruption. Why?

The concept of consensually strong states discussed in our last post suggests one possible answer. High tax rates that emerge from the democratic process are viewed more positively — or dare we say “legitimately”? — because citizens consent to them with the expectation that the proceeds will be used for spending that they value. The taxes we observe, according to this perspective, are legitimate while corruption and expropriation isn’t because taxes collected by the consensually strong state will, with some slippage, be used for what the citizens support, and of course, the money that goes into the pockets of a kleptocrat or corrupt officials or a crony elite will not be. 

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