Breaking the Fiscal Contract:

Why Do Governments Weaken Enforcement And Allow Tax Noncompliance?

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Why do governments undercut their own ability to collect taxes?

Why do they pass bad tax policy?

Why do they delay good tax policy?

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In recent years, these questions have gained new relevance. Trump's first action in his second administration took aim at the IRS, slashing billions in funding and cutting a large proportion of the agency staff. However, this behavior is by no way novel. Governments around the world routinely pass repeated tax amnesties, known to undermine compliance incentives. States often repeal or delay critical enforcement policy innovations, such as withholding, e-filing, and third-party reporting. Berlusconi famously joked about tax evasion, defending it as a permissible response to overbearing tax rates.

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A longstanding assumption of institutional behavior is that rulers are revenue-maximizers. The widespread, purposeful weakening of fiscal capacity thus presents a paradox: why would states compromise their own revenue sources, introducing clear unfairness in the tax systems and limit their ability to finance downstream policy action?

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In my book project, I advance a novel political economy argument, centered on the pivotal role of "noncomplier coalitions". Taxation presents a jagged landscape of opaque and surgical policy options, which give raise to idiosyncratic societal cleavages. Across contexts and tax instruments, I show that groups of taxpayers are often able to carve out islands of noncompliance, shifting the tax burden to their compatriots who cannot escape enforcement. 

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My work draws on novel and comprehensive data collection, advancing a database of cross-country tax enforcement policies, as well as a battery of in-depth case studies, to reveal the coherent and pervasive political economy of tax evasion and avoidance. My analyses demonstrate how enforcement is continually renegotiated at the margins of the fiscal contract, with implications for horizontal fairness, redistribution, and the functioning of the state.