A "Taxpayers' Revolution" and Economic Rationality

A "Taxpayers' Revolution" and Economic RationalityAuthor(s): Raymond JacksonSource: Public Choice, Vol. 10 (Spring, 1971), pp. 93-96Published by: SpringerStable URL: http://www.jstor.org/stable/30022640 .

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A "TAXPAYERS' REVOLUTION" AND ECONOMIC RATIONALITY

Raymond Jackson*

Public officials at the federal, state and local levels have shown some concern over the likelihood of a "taxpayers revolution". The Internal Revenue Service has

reported unprecedented delays in the collection of tax revenues [4, p. 6]. Bond issues when put to a vote on state and local referenda have more often than not been defeated even when destined for the heretofore sacrosanct area of education.1

Using indifference curve analysis J. M. Buchanan and M. Flowers [1] indicate how the taxpayer can be forced into disequilibrium by government policies and begin to show resistance to paying taxes and hostility towards increased public spending. However, they limit themselves to placing the taxpayer in a state of disequilibrium but not in a state of revolution. The purpose of this paper is to indicate the point at which the taxpayer moves from merely disequilibrium to revolution. When the revolution arrives taxpayers will not only reject whenever possible all attempts to

expand government expenditures but will demand that additional public goods be

provided through private arrangements. In addition it is shown that such revolution, far from being irrational, is consistent with economic rationality.

I. The Satisfied Taxpayer

A taxpayer is satisfied when the government maximizes his total utility by providing the optimum quantity of collective-consumption goods. In Figure 1 our

representative taxpayer is initially at point A where all resources are used for private goods. By remaining at A he achieves a total utility of U0. Acting alone, the individual is able to convert private goods into collective-consumption goods by moving along transformation curve AB. The taxpayer can move along AB until he achieves the highest utility level U1 at point E1.2 However, through collective action taxpayers can convert private goods into collective-consumption goods more

efficiently. Hence the collective transformation curve AC is steeper than AB, indicating collective-consumption goods cost less in terms of the required reduction

* Boston University.

1According to figures compiled by the U. S. Department of Health, Education and Welfare during 1964-65 voters approved 74.7% of all bond issues for education and only 56.8% during 1968-69. On a dollar basis 79.4% of the total value of bonds put to a vote from 1964-65 were approved and only 43.6% from 1968-69 [3, p. 63].

2Buchanan and Flowers construct U0 from point A but entirely above AB [1, p. 3501. This implies the taxpayer has no incentive to obtain collective-consumption goods privately if collective action is unattractive. This seems unduly restrictive since some taxpayers even now provide themselves with collective-consumption type goods; (e.g., privately hired armed guards and the private construction and maintenance of uncongested access roads have the essential characteristics of public goods).



94 PUBLIC CHOICE

Uo

C

B

Ro U,

R1

U2

E1

E2

U1 U2

PUBLIC

GOODS

PRIVATE GOODS A

FIGURE I.



NOTES 95

in the consumption of private goods. Moving along AC the taxpayer is satisfied at

E2 which allows him to achieve utility level U2. Government policies which provide the amount of collective-consumption goods indicated by E2 will be politically stabilizing.

II. The Revolutionary Taxpayer

Increased public spending beyond that indicated by E2 in Figure 1 places the

taxpayer in disequilibrium. As the government continues to push the taxpayer upwards along AC, total utility keeps declining and dissatisfaction grows. When

point R1 on AC is reached the taxpayer is in a revolutionary state. The utility U1 derived at R1 under government auspices can be attained by the taxpayer at El by private transactions. A further increase in government spending reduces utility below the level which he could achieve through private transactions and the

taxpayer will revolt. By eliminating entirely collective or government expenditures the taxpayer can increase his utility. If the government proceeds past R1 to RO the

revolutionary state intensifies. At RO taxpayer utility U0 is equal to the utility at

point A where all resources are used for private goods. Hence pushing collective

operations past RO brings forth demands not only for the curtailment of

government spending but also for an end to the further production of collective-

consumption goods, since taxpayer utility would be greater if none were currently produced either collectively or privately. A successful taxpayers' revolution which prevents the government from carrying out- its fiscal policies brings the taxpayer back to point A. He could then reach El privately and support political activity which would lead to a new regime in order to hopefully achieve E2 again.

The taxpayer can also be driven to revolt if government operations become

highly inefficient or government policies concerning the ingredients in the

collective-consumption good mix change. A decrease in efficiency or an increase in

corruption means that less collective-consumption goods are provided for a given reduction in private goods and therefore collective-consumption becomes relatively more expensive. The collective action transformation curve AC approaches the

slope of the individual action curve AB. The taxpayer is in disequilibrium since the maximum utility he can attain through collective action is now less than U2. The

revolutionary state is reached when AC coincides with AB. Any further increase in

inefficiency or corruption moves AC below AB and the taxpayer can achieve

greater utility through the private provision of public goods. A revolutionary state can also develop through a change in the collective-goods mix which government provides. One could represent this change in Figure 1 by altering the taxpayer indifference curves taking into account their evaluation of the revised quality of the

good. However since it is government priorities which have changed and not

taxpayers' tastes, the best approach is to reduce the slope of the collective- transformation curve AC. This indicates that taxpayers receive less units of

collective-consumption goods which are of value to them for a given reduction in



96 PUBLIC CHOICE

resources devoted to the production of private goods. The more the public sector uses resources for the production of goods which are of little or no value to the

taxpayer the more the collective transformation curve AC approaches AB. A

revolutionary state is reached as before when AC coincides with AB.

The actual revolution may be due to a combination of reasons and occur before AC falls below AB. An increase in inefficiency or a divergence between

government priorities and taxpayer tastes reduces the slope of the collective transformation curve AC. If in addition more and more fesources are removed from the production of private goods, the taxpayer is pushed upwards along this less favorable transformation curve. With both forces at work reducing satisfaction he will in a relatively short time reach points like R1 and RO which lead to a taxpayer revolution. However, outward manifestations of the revolt will depend on the cost of engaging in such activities.3 Under democratic processes the cost to the taxpayer of voting against bond issues, organizing political opposition or establishing private facilities when R1 is reached may be relatively low. By considerably raising the cost to the taxpayer for participating in the revolution, the state could well push beyond R1 without observable taxpayer action.

REFERENCES

1. Buchanan, J. M. and Flowers, M. "An Analytical Setting for a "Taxpayers' Revolution," West. Econ. Jour. 7 (Dec. 1969), 349-359.

2. Tullock, Gordon. "A Model of Social Interaction," Mathematical Applica- tions in Political Science (forthcoming).

3. New York Times, January 12, 1970.

4. Wall Street Journal, April 2, 1970.

3See Gordon Tullock [2] for an analysis of social choice which considers the cost of action.



A "Taxpayers' Revolution" and Economic Rationality

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