Joel Slemrod (Ross School of Business, University of Michigan) presents The Coase Theorem and Tax Law (with Kyle Logue (Michigan) at Yale today as part of its Law, Economics & Organization Workshop Series.  Here is the abstract:

The Coase Theorem and its related literature explore the questions to whom should responsibility for external harms be assigned and when and how will that assignment matter? Our paper applies this Coasean approach to a similar set of question in the tax context: To whom should the responsibility for remitting taxes be assigned and when and how will that assignment matter? The paper analyses previously unexplored similarities and differences between the various Coasean invariance propositions and the standard tax remittance invariance propositions form the public finance literature. One set of insights that derive from our analysis is that, once administrative costs and compliance costs are taken into account, an argument can be made that the overall lowest-cost tax remitter will not necessarily be the party with the lowest compliance costs and that, as in the literature on the economic analysis of tort law, an argument can be made for a regime of vicarious joint-and-several tax liability. Indeed, we contend that current rules governing the remittance of federal income taxes in the U.S. already contain elements of vicarious joint-and-several tax liability. We also suggest ways in which such rules might be expanded to enhance overall tax compliance at relatively low cost. One of our primary policy conclusions is that, in situations in which the policymaker is choosing who among a group of contractually connected parties should bear the tax remittance responsibility for the tax liability generated by the contractual relationship, imposing the remittance obligation on the larger, wealthier party – the one most likely to have assets with which to pay the tax and the one whose tax compliance will be cheapest (per dollar of tax collected) to ensure – and making that assignment nontransferable may come closest to achieving the policymaker’s intended combination of tax revenue and distributional consequences at the lowest possible costs. For example, we argue that the optimal tax remittance regime probably would entail a requirement that large employers be required to withhold and remit taxes not only for their employees, as is currently required in U.S. law, but also for independent contractors. Similarly, we argue whether the remittance obligation for a sales tax should be imposed on the seller or the buyer should in some cases turn on the parties’ relative size.