CRIEFF Discussion Paper Number 0213

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The role of beliefs for the sustainability of the fiscal constitution

Bernhard Neumaerker

Gerald Pech

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Abstract


Why does the government not defect from the constitution? This article focuses on the dynamic restraints the government faces under the rule of law: violations against unconstitutional laws are not punished under the constitution. If a violating government cannot commit itself never to reinstall the constitution enforcing an unconstitutional law becomes difficult. Citizens' expectations to go unpunished when not complying may be self-fulfilling. Deriving the equilibrium of a global game we show that this mechanism is effectively deterring a government from defecting from a constitutionally permissible tax rate.     

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Key Words
tax evasion, global games, self-fulfilling expectations, dynamic policy restraints
JEL Classifications
K42, H26, E61, D7

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Bernhard Neumaerker
Ruhr-University Bochum and Saarland University

Gerald Pech
University of St Andrews

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