INSTITUTIONAL CONSIDERATIONS ON STEPWISE REFORM OF INDIRECT TAXATION

In a paper to the theory of optimal tax reforms (OT) Wiegard (1980) rose the question: ,, Which little structural changes of the tax system of indirect taxes lead to welfare improvements?" The answer to this normative question was given by a general equilibrium model. However the aims of politicans and bureaucrats or institutional restrictions usually are not considered in OT-models. By using an OT-approach this article shows the risk of disregarding political targets. Especially the most accepted efficiency rules of the OT could be misused for tax maximization. To avoid uncontrollable tax increases the implementation of a fiscal constitution is proposed. As we know from Brennan/Buchanan fiscal restrictions should compensate the defects of fiscal decision making in the political process.