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Eric Jones has found that excessive taxes were detrimental for pre-modern China's economic growth whereas moderate taxes were conducive for Europe's economic growth. This paper provides a political-economic answer to the question why these two tax systems came about. Taxation is only feasible when men and land can be linked as a single bundle. Taxation of land is not feasible without men, and taxation of men is not feasible without land. A tax maximizing bureaucrat has to combine the two variables in such a way that tax revenues are maximized given the constraints of land and men in his country. China's contiguous geography allows bureaucrats to establish an autocratic tax system whereas Europe's split geography enforces a competitive tax system. Therefore often contiguous states reveal to be stable states whereas split states turn out to be unstable and prone to collapse.

It is often disregarded that the euro is first of all a public good based on common institutions such the European Central Bank, the Governing Council and a network for executing transactions etc. Establishing a public good is fundamentally different from trade in private goods. A public good needs a coordinated action. All participants have to join their efforts towards the same goal. The more one individual contributes to the public good, the less has to be contributed by the other individuals which is an invitation to free riding. This is an inherent weakness of a public good as compared to private goods. If the partners are badly chosen in the beginning or if they shirk on their contribution, the public good is not produced or it is badly produced and ends in a crisis. No repair is possible. The venture has to be started anew.

The theory of optimal currency areas states that a currency union may succeed if the participating countries have complementary industry structures. If this is not the case a currency union does not, inevitably, have to fail because market forces will induce adjustments of the industry structures that will eventually lead to a successful currency union (see e.g. De Grauwe, 2006). This optimism is, however, not warranted for the euro. The euro has now been in a crisis for more than three years and a self-correcting mechanism leading out of the crisis is not in sight. The reason is that the euro union does not suffer from unadjusted industries, but from unadjusted governments. While industries adjust under the command of the invisible hand of the market in a currency union, this is not necessarily the case for governments. The general point of this paper is that countries with incompatible governments remain inimical in a currency union. They generate externalities and crises which cannot be eliminated as well in a political union. Assume that two countries traditionally cooperate in an economic union. Their governments are financially independent. They "go Dutch". A currency union, such as the euro union, is different. It opens not only the option of a closer economic cooperation, but it also allows for a joint cash management so that each government has the temptation to live on the otherś costs and hence to generate negative externalities on the other. The governments may be aware of this trap. They conclude a Treaty in order to prevent their mutually destructive behavior. But the Treaty turns out to be non-enforceable and therefore unable to stop the infringements by mutual externalities, this being the essence of the euro crisis. Therefore the governments should withdraw and return to an economic union without externalities.

It is common knowledge that mobile individuals are difficult to tax. Governments accommodate these difficulties by granting special tax reductions to mobile individuals as it is expedient to get some tax revenue from these individuals rather than to lose them as tax payers completely. Taxing according to expediency is, however, criticized by ordinary tax payers who claim that the basic principles of tax equity are consequently violated. Therefore governments have to solve a difficult trade off between the two goals in order to survive. The variables entering in this optimization process remain disguised in the normal case of a representative democracy. In a direct democracy, however, the trade-off between tax expediency and tax equity principles is revealed by voters. In this paper we distinguish between situations where voters vote instrumentally in favour of tax expediency and where voters vote expressively in favour of equity principles. A popular vote in the canton of Zurich of 2009 serves as a natural experiment for testing the instrumental versus expressive voter hypotheses. We find that instrumental voting prevails in small rural municipalities and expressive voting in larger cities. As expressive voters are in majority in the canton, they exert a cross border externality by imposing their will on the majority decisions of the smaller municipalities. This observation may be of a particular importance when, on the federal level, expressive urban voters may impose their will on the voters of rural cantons voting instrumentally.

Im vorliegenden Beitrag wird ein einfaches Konzept einer föderalen Finanzverfassung für Deutschland vorgelegt.Die Finanzen der Gebietskörpershaften sollten nach dem Prinzip der institutionellen Kongruenz organisiert werden, d.h. so dass sich Nutznießer-, Entscheidungsträger- und Steuerzahlerkreise decken. Steuern nehmen dann die Funktion von Preisen wahr. Nicht nur laufende, auch die Kreditaufnahmeentscheidungen lassen sich in dieses Konzept einschließen. Für den ergänzenden Finanzausgleich wird ein System der Hilfe zur Selbsthilfe vorgeschlagen. In mancher Hinsicht gleicht die vorgeschlagene Finanzverfassung der des Grundgesetzes von 1949, was die rechtliche Umsetzung erleichtern dürfte. Die politische Umsetzung wird u.a. durch den Druck der Globalisierung gefördert. (Quelle: Verfasser).