The contractarian theory of taxes as fiscal prices in development of Public Choice

The social pact-contractarian approach to taxes as prices of public services appeared with the anti-Hobbesian theory of social contract contractualism based on natural laws relating to individual rights of property, health and liberty of Samuel Pufendorf (1668) and of John Locke (1690). In the Hume approach, the evolutionary aspect of the pact as reciprocity behavior is evidenced. Adam Smith’s approach to taxation in Wealth of Nations (1773) adopts the contractarian theory of taxes in the interaction between supply and demand in an ambiguous way, the benefit principle being mixed with the ability to pay principle. Alexis De Toqueville (Democracy in America) links the tax-public expenditure relationship to the democratic system under the majority principle with redistribution limited by mutual interest and other factors. The first theoretical formulation in terms of marginal utility of taxes equalized with that of public services, by the Austrian economists Sax and von Wieser, overlooks participation of individuals in choices both in the formation and application of rules. The task of considering the interaction between government structure and individuals and market economy structure was undertaken by the marginalist Italian schools of Ferrara, Ricca Salerno, Mazzola, De Viti De Marco, Pantaleoni, Einaudi and by the Griziotti and Vanoni law and economics school.  The Swedish school of Wicksell and Lindhal developed the public process by individuals through the voting system. James Buchanan and Gordon Tullock building on Italian and Wicksellian tradition developed a two-level public choice system at the constitutional and post-constitutional level with a dual “Italian “model without exploitation and with exploitation. However, they differ because Buchanan’s approach includes ethical elements as in the natural law tradition, while Tullock’s approach is strictly utilitarian. Alan Peacock’s approach emphasizes the importance of the supply side aspect inherent to government as an organization and to politicians as entrepreneurs.  In the Coasian law and economics approach, the fruitfulness of a private law approach is evidenced. Feld and Frey follow a parallel line in their paradigm of the implicit psychological social contract.  Alm explains that tax compliance is more often much greater than that explicable thorough deterrence of tax enforcement policy via group motivation. In experimental economics research, such as that of Burlando and Hey, the existence of an implicit social fiscal contract emerges with varying results, under altruism, cooperation and reciprocity hypotheses, with accompanying factors dealt with through development of the public choice approach.