ECONOMIC ANALYSIS OF TAX LAW FROM A SUSTAINABILITY PERSPECTIVE.

• Author: Schmiel, Ute

1. INTRODUCTION 598 II. ECONOMIC ANALYSIS OF LAW AND CRITICAL RATIONALISM 601 III. SDGs AS ADEQUATE SOCIAL ORDER VALUES? 606 IV. How TO DESIGN TAX LAW WITH REGARD TO SDGS 612 V. SUMMARY 622 I. INTRODUCTION

   Since it is necessary to finance sustainability, taxation plays a vital role in this context. Yet, taxation is not only relevant regarding financing. Rather, tax rules usually cause effects that can either be in line with sustainability or contradict it. More precisely, if we refer to the Sustainable Development Goals (SDGS), (1) it is obvious that tax rules can support these goals or contradict them. Thus, the SDGs not only have to be financed through taxes but also require certain tax designs. To give an example: According to SDG 10, inequality should be reduced and more equality achieved. Therefore, taxation should finance more equality, and, at the same time, tax rules themselves should be compatible with this goal. To list other examples, SDGs 7, 11, and 12 require affordable and clean energy, sustainable cities and communities, and responsible consumption and production. In consequence, the questions arise how tax rules can contribute to these goals and if such tax rules cause secondary effects that are acceptable. Giving an answer to whether certain tax rules are adequate from a sustainability perspective requires methodological rules. However, the prevailing literature focuses mainly on individual aspects of sustainable taxation, e.g., on the financial aspect (2) or environmental aspects (3) of sustainable taxation, or it considers sustainability and taxation in a more comprehensive sense but does not delve into methodological and theoretical aspects. (4) Yet, a framework that answers the question how to design sustainable tax rules from a methodological and theoretical (more precisely, a social science) perspective is still missing. Because of that, the present Article provides a framework that deals with the question whether tax rules can be compatible with the SDGs.

   Designing legal rules from a social science and, in particular, an economic perspective is part of the economic analysis of law. The mainstream approach of economic analysis of law (5) deduces social order rules from the general value of neoclassical efficiency Yet, from this Article's perspective, efficiency is not an adequate social order value for sustainable tax law, and neoclassical theory is not an adequate underlying theory. In literature, we can also find the objection to the mainstream approach that efficiency is a problematic value (6) or that the underlying theory contradicts reality. (7) However, there are, as yet, only drafts for the economic analysis of tax law in general, (8) but no methodology for the economic analysis of tax law from a sustainability perspective.

   Therefore, the present Article aims to close this research gap by outlining a methodology of economic analysis of tax law from a sustainability perspective. In contrast to the mainstream approach of economic analysis of law, the present Article takes a critical rationalist view according to Albert (9) and Gadenne, (10) and sketches out its methodological framework in Part II. Critical rationalism interprets social order rules as means to achieving social order values. (11) Thus, taking critical rationalism as a basis implies understanding tax rules as means to achieving social order values as ends. The present Article firstly gives reasons why it considers SDGs as social order values. Secondly, this Article analyzes how tax rules can be designed in accordance with the SDGs. It argues that economic analysis of law needs theories other than neoclassical theory and ethical concepts of relevant social values. It takes the political-cultural market approach of Fligstein (12) as a basis, which, in turn, refers to the theory of fields according to Bourdieu. (13) Furthermore, this Article refers to the resource dependence approach of Pfeffer and Salancik. (14) Part III deals with the SDGs as social values. Part IV focuses on the question of how to develop an adequate tax law.

   Part V summarizes the findings, in particular the core elements of economic analysis of law from a sustainability perspective.

2. ECONOMIC ANALYSIS OF LAW AND CRITICAL RATIONALISM

   The present Article refers to critical rationalism, in particular, to a critical rationalist methodology based on works of Albert (15) and Gadenne. (16) The reasons are that Albert and Gadenne apply critical rationalism to social science and that Albert also uses critical rationalism in politics. (17) Since effective legislation is part of politics, these methodological rules are relevant for an economic analysis of law. There are three main characteristics of critical rationalism. Firstly, critical rationalism assumes a reality that exists independently from the individual's mind, (18) but the perception of (this) reality is subjective because it is theory laden. (19) Critical rationalism calls this first main characteristic critical realism. (20) Secondly, due to the induction problem, critical rationalism denies that we can achieve absolute truth, knowledge, or an absolute justification of values and methodology. This so-called consistent fallibilism teaches us that our knowledge is limited and that new knowledge that challenges our previous knowledge can arise every moment. In consequence, we are not able to design perfect social order rules either. From consistent fallibilism follows, thirdly, a methodical rationalism that implies discussing hypotheses and values critically and comparing them with other hypotheses and values. (21) Thus, we also have to discuss social order values and social order rules critically.

   Compared with the mainstream approach, the approach presented here differs in three main points. The first difference deals with the structure of economic analysis of law. According to critical rationalism, we do not have reason to dogmatize social order values, but we have to set them as a hypothetical basis. Furthermore, since ends do not justify means, even if we have reasons to accept a social order value (end) preliminarily, we do not have reason to automatically accept social order rules (means) that conform to this end. However, we can find such an ends-justify-means procedure in the mainstream approach of economic analysis of law. The mainstream approach accepts general value efficiency and, because of this, automatically accepts any legal rules that support efficiency and, in fact, their secondary effects. (22) In this manner, Posner compares the value of sheep to that of a child. If all sheep together are worth

   more than any money value that can reasonably be ascribed to the child; must not the economist regard the driver as a good man, or at least not a bad man, when he decides to sacrifice the child? My answer is yes. ... Dangerous activities are regularly permitted on the basis of a judgment that the costs of avoiding the danger exceed the costs to the victims. Only the fanatic refuses to trade off lives for property.... (23) By accepting the general value efficiency, Posner automatically accepts any means and in fact any secondary effects. Figure 1 shows this framework.

   In contrast, since a critical rationalist perspective denies undisputable social order values, an ends-justify-means procedure, a dogmatizing of social order values, or an automatic acceptance of social order rules will not work. Rather, critical rationalism, in particular the so-called freedom of value judgment, demands to set the SDGs as a hypothetical basis and to discuss them critically. This implies reasoning why SDGs in general could be adequate values. Furthermore, a critical discussion requires interpreting the SDGs because they are not definite. Moreover, we have to analyze whether one certain SDG is compatible with others (or with other social values), and if so, whether it is realizable. The latter entails the analysis of whether we can design social conditions according to the underlying theories. With regard to tax rules, we have to analyze whether they fit in with a specific interpretation of the SDGs, and we have to ask if tax rules (means) and their secondary effects are compatible with other SDGs or other values. Moreover, we should compare the tax rules in question with other tax rules regarding these points. If other tax rules fulfill these requirements better than the analyzed tax rules, we do not have reasons to accept the latter ones. Otherwise, we do have reasons to accept them, but we can only accept them preliminarily. (24) Figure 2 summarizes the structure of our framework.

   The second difference between the approach presented here and the mainstream approach refers to the theoretical dimension. As we saw above, the theoretical dimension means interpreting values and asking if values are realizable, if legal rules support certain SDGs, and if legal rules cause secondary effects. To examine this, we need theories that are adequate in a critical rationalist sense. The mainstream approach of economic analysis of law refers to neoclassical market behavior and market theory. (25) Yet, the theories of perfectly rational behavior and perfectly competitive markets do not fulfill the critical rationalist requirement (26) that assumptions and hypotheses should be preliminarily empirically confirmed. In contrast to the mainstream approach, the approach presented here refers both to Fligstein's market approach (27) and to the resource dependence approach, (28) which, as this Article shows in Parts III and IV, are in line with critical rationalism.

   Thirdly, the concept presented here differs from the mainstream approach regarding the ethical dimension. As we saw above, economic analysis of law has an ethical dimension because values need to be substantiated, and values, legal rules, and their secondary effects need to be compatible with other values. (29) Because of the ethical dimension, economic...