Self-Imposed Constraints on Collective Action Under Uncertainty

Under what conditions does, or should, a collective of rational individuals support the imposition of a binding constraint on their own collective action? Our innovation is to allow citizen-taxpayers in a standard political economy model to be risk-averse and uncertain about the future average cost of the collective good, their own future income or wealth, and the future distribution of the tax burden. We show that if citizen-taxpayers face such uncertainty, an agency problem — broadly defined as a flaw in the political process that produces collective decisions incongruent with majority preferences — is neither necessary nor sufficient to justify a binding tax ceiling. This is a striking result, because it contradicts existing theory and can help explain why, empirically, some tax systems are more subject to ceilings than others.