A contractarian approach: Rules which shape tax expenditure decisions and policies

This paper applies a contractarian economic approach to tax expenditure decision-making. It speculates as to what kind of a tax policy process could have emerged hypothetically from unanimous agreement between rational individuals in a constitutional convention. The analysis suggests the limitations of simple majority rule in making tax expenditure decisions, and the desirability of some form of qualified majority rule so that such decisons would require the approval of two-thirds or even three-quarters of votes in the legislature. It is argued that the use of qualified majority rule would help stem the proliferation of tax expenditures and promote greater stability in the tax structure.