This article examines the paradox that a supermajority rule in a legislature promotes excessive government spending. We propose a simple conjecture: If rent-seeking coalitions dominate legislative politics and if individual legislators' demands for rent-seeking activities are priceinelastic, a change of legislative rules from simple majority to a supermajority will lead to greater public spending, other things equal. Using data from U.S. state legislatures, 1970 to 2007, we find that the adoption of a supermajority rule has a robust, positive impact on various types of tax revenues and government expenditures.

No abstract

This paper examines the claim that the adoption of a value-added tax (VAT) increases the size of government. Our analysis suggests that introducing the VAT, despite the fact that it is a relatively effi cient tax in comparison to the income tax alternative, has little impact on government growth due to two factors: (1) the substitution of the VAT for other tax sources, and (2) the low price elasticity of demand for public goods. In contrast, demand-side changes may have a more signifi cant impact on government size, thus reversing the direction of causality. Using a panel of 29 OECD countries over a period of 38 years (1970-2007), we confi rm these hypotheses. Our fi ndings imply that the demand for government spending markedly infl uences the tax structure of society. Using a broad concept of tax costs, introduction of a VAT increases social welfare because it reduces compliance costs, rent-seeking, and effi ciency costs. Accordingly, increased usage of VATs during the 20th century should be understood as a collective choice to accommodate growing demands for public expenditure.

This paper investigates the missing link between multi-dimensional components of social capital and the size of the shadow economy, an association generally considered to be ambiguous. A simple agency model shows that social capital and the shadow economy are connected through a mechanism reducing the perceived level of corruption. Using a sample of 65 countries, 1999 to 2007, the paper finds that social trust, social norms (e.g. tax morale), and a broad index of social capital are robust, negative determinants of the shadow economy.

No abstract