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Indiana University Bloomington


The Kelley Advantage

The department is home to the authors of Managerial Economics and Business Strategy and Games and Information: An Introduction to Game Theory, two of the nation’s leading textbooks in the field.

Research and Publications

Journal Articles

The Uneasy Case for the Flat Tax

2000, Constitutional Political Economy

F. H. Buckley, Eric Bennett Rasmusen


Social contract theories assume that because personal security and private property are at risk in a state of nature, citizens will agree to grant Leviathan a monopoly of violence. But what is to prevent Leviathan from turning on his citizens once they have lain down their arms? The social contract leaves citizens worse off unless Leviathan can fetter himself, as constitutional democracies seek to do. Self-binding fetters are hard to find. We suggest that schemes of progressive taxation, in which marginal tax rates increase with taxable income, may be useful incentives to realign Leviathan's incentives with those of his citizens. Income taxes give Leviathan an equity claim in his state's economy, and progressive taxes give him a greater residual interest in upside payoffs. Leviathan will then demand higher side payments from interest groups before he imposes value-destroying regulations. 


Rasmusen, Eric Bennett and F. H. Buckley (2000), "The Uneasy Case for the Flat Tax," Constitutional Political Economy, Vol. 11, No. 4, December, 295-318.