How does economic activity proceed in the absence A. A. of formal legal systems? What alternative rules and institutions evolve? Princeton economics professor Avinash Dixit’s April 7 IMF Institute seminar, “Lawlessness and Economics,” addressed the theory of alternative modes of governance using economic models. He drew on the works of prominent thinkers in new institutional economics and the social sciences, using case studies to show different institutional responses to legal failures.
The sensitivity (i.e., elasticity and built-in flexibility) of the U. S. individual income tax to changes in national income is of great interest to researchers and policymakers. However, the direct measurement of this sensitivity—that is, the measurement obtained from time-series observations of the relevant variables—has always been difficult, and even at times impossible, because changes in the legal structure of the tax have been too frequent to provide enough observations that relate to the same legal structure to allow statistically significant coefficients to be determined. This was particularly true in the United States before 1954, when the rates were changed frequently; it has also been true since 1963, when important changes occurred in rates, personal exemptions, deductions, and other features. In contrast, during the period between 1954 and 1963, hardly any significant statutory changes occurred in the tax.