Taxes: Price of Civilization or Tribute to Leviathan?

The report considers the question of taxes as price versus tribute for contemporary India and makes three points. First, if the accounting cost of services provided exceeds the economic cost (the minimum at which the good or service could have been provided), then the difference can be considered “tribute.” Second, to the extent that government engages in activities which would not have otherwise been carried out at all but which citizens value, the “price of civilization” is maximized. In contrast, when government budgets produce private goods at such low quality they are valued at zero by many, then those taxpayers consider this tribute. Third, the structure of social spending between “insurance”-like programs which benefit all individuals at various states or stages of life, and sharply targeted transfer programs determines whether most taxpayers consider taxes to fund these expenditures a price or tribute. Taken together we argue India needs more taxes as price of civilization but less taxes as tribute, which currently dominate. This contradiction is created by a costly and yet ineffective state the solution to which can neither be a weaker state on the one hand nor more tribute paid to dysfunction on the other, but rather a better state.