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Trust the profit motive

14 December 2011 By Edward Hadas

Greed may be a less noble motivation than duty, but it can be more effective. Greece and other countries which have disaffected tax collection bureaucracies and rampant tax evasion might consider taking a step backwards in economic history, to a system of tax publicans.

The public in the word “publican” is misleading. The system, used in the Roman Empire, was what moderns would call a public-private partnership. The publicani were private contractors to the state, winners of auctions for the right to collect taxes in a particular region. They paid the government up front (often having to borrow to raise the funds) and then worked hard to collect. Their motivation was clear enough – they kept the excess over their bid.

The arrangement worked well for some collectors. In the New Testament, Zacchaeus the publican did not expect to be made destitute by donating half his money to the poor and making a four-fold penalty payment on any illegal extractions. In the France of Louis XIV, where the practice was known as tax farming, Nicolas Fouquet collected enough to pay for a spectacular chateau, Vaux-le-Vicomte.

For the central governments, the publican system was far from perfect. The collectors took too large a share of the revenues and could become too powerful. Fouquet himself was later arrested for having used misappropriated public funds to build a castle too luxurious for the king’s taste. The advent of modern tax bureaucracies with their salaried employees was welcome. As the sociologist Max Weber said, “The fully developed bureaucratic apparatus compares with other organisations exactly as does the machine with the non-mechanical modes of production”.

But the bureaucratic system has broken down in Greece. The government’s promises of improved tax collection are not being met. That should not be surprising. The civil servants’ sense of duty has been undermined by pay cuts and there has been no surge of popular willingness to support the state in its moment of need.

If tax agency employees and tax judges take bribes from tax evaders, then the worst part of the publican system is already in place. It may be time to get the best part of that non-mechanical mode of tax collection there too.

 

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