Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Plekhanova's Taxes Through The Reciprocity Lens

This week, David Elkins (Netanya, visiting NYU 2021-2023; Google Scholar) reviews a new paper by Victoria Plekhanova (Massey), Taxes Through the Reciprocity Lens, 70 Can. Tax J. 303 (2022).

In this week’s feature article, Victoria Plekhanova formulates what she describes as a reciprocity-based framework for a systematic assessment of the normative merits and effectiveness of taxes. Painting with a broad brush, the author begins by describing Aristotelian concepts of justice, and in particular distributive justice (those who are equal are entitled to equal shares, and those who are unequal are entitled to unequal shares in proportion to their inequality) and commutative justice (a corrective remedy should rectify the injustice inflicted by one person on another). Each deals with a different moral problem. Distributive justice focuses on the sharing of burdens and benefits, while corrective justice links the wrongdoer and the sufferer of injustice in terms of their correlative positions prior to and after an interaction.

Moving to taxes, the author describes taxation as a collective action made up of large-scale exchanges in which the combined individual contributions are exchanged for collective goods that will benefit many individuals and legal entities within a particular geographical territory. Following the Aristotelian model, she then classifies taxes into three categories: universal (the primary or exclusive goal of which is raising revenue), distributive (the basis of which is ability-to-pay), and corrective (the purpose of which is to discourage free-riding). Corrective taxes, the author claims, include both Pigouvian taxes and anti-avoidance taxes. They follow neither ability-to-pay nor benefit theory, but are based directly upon negative reciprocity. It is not the availability of public goods as such that triggers the corrective tax, but the person’s failure to contribute to the provision of such goods on an equal footing with other community members.

The second half of the article analyzes two recently imposed UK taxes, the diverted profits tax (DPT) and the digital services tax (DST), in light of those principles.

The article is ambitious and far-reaching. In this short review I would like to focus on the first half of the article, in which the author presents her view of reciprocity in taxation. One critique that I have is that this part of the article perhaps bites off a little more than it can chew. Fourteen pages or so is hardly enough to describe a novel view of tax theory. Almost every paragraph in that section raises claims that it would take an entire article to explore.  I often found myself wondering how exactly the author progressed from one idea to the next and how she would respond to various counterarguments.

As one example, I was not convinced by the author’s attempt to assimilate Pigouvian taxes with anti-avoidance measures under the rubric of corrective taxation. The supposed common attribute of the two is the notion of free riding. In the case of Pigouvian taxes, actors benefit from their imposition of harm on others without bearing the costs of that harm. In the case of tax avoidance, individuals or firms benefit from public expenditure without bearing the cost. However, to my mind the focus of each is very different. The primary goal of Pigouvian taxes is to promote economic efficiency. Left unchecked, the market failure inherent in externalities will result in actors over-engaging in behavior that entails negative externalities and under-engaging in behavior that entails positive externalities. By internalizing the externality, Pigouvian taxes (and subsidies that take the form of negative Pigouvian taxes) encourage only those behaviors that produce a net social gain (whether or not the taxes collected should be used to compensate those who were harmed by the taxpayer’s behavior was not directly addressed by Pigou and is generally ignored in the literature). In contrast, the free riding inherent to tax avoidance is not an issue of economic efficiency but rather, the author claims, of distributive justice. If a firm pollutes a local water supply and does not need to compensate those adversely affected, more pollution than is economically justified will be produced. If the firm understates its income and pays less tax than it would otherwise, other taxpayers might bear the burden, but the harm appears to be substantively different.

The author is a scholar whose primary work is in the field of international taxation. To the best of my knowledge, this is her first venture into tax theory (albeit along with its application in international taxation). I for one look forward to her future work.

Here’s the rest of this week’s SSRN Tax Roundup:

• Syed M. Humaid Adil (Aberdeen), Taxing the Rich (Abroad): Combating UK High-Income Earner Flight to Preferential Personal Income Tax Regimes with Conditional Citizenship-Based Taxation, 2 Pembroke L.J. 100 (2022)
• Nathan Born (Penn) & Adam Looney (Brookings), How Much Do Tax-Exempt Organizations Benefit from Tax Exemption, Tax Policy Center Research Report (2022)
• Hua Cheng (Nankai), Xiaowei Chen (Nankai) & Shusen Qi (Xiamen), Asymmetric Corporate Tax Compliance: Evidence from a Tax Reform in China (2022)
• Bernd Hayo (Marburg) & Sascha Meirzwa (Marburg), Legislative Tax Announcements and GDP: Evidence from the United States, Germany, and the United Kingdom (2022)
• Tarun Jain (Supreme Court of India), Estimating Tax Deduction at Source: An Unending Controversy in India? (2022)
• Tae-Nyun Kim (New Jersey) & Pil-Seng Lee (Baylor), Product Market Threats and Tax Avoidance (2022)
• Michael S. Knoll (Penn) & Ruth Mason (Virginia), Amicus Brief of Michael Knoll and Ruth Mason Supporting Petitioners in National Pork Producers Council v. Ross (2022)
• Susan C. Morse (Texas), Out of Time? APA Challenges to Old Tax Guidance and the Six-Year Default Limitation Period (2022)
• Vicki Wei Tang (Georgetown) & Tony Zhang (Illinios), Regulation, Tax, and Cryptocurrency Pricing (2022)