Judges and Taxes: Judicial Review, Judicial Independence and the Size of Government

Abstract

The study investigates how judicial review of policy and judicial independence affect the relative size of government. Judicial oversight of policy is the authority of courts to check the legality of policy measures and annul measures which are incompatible with the constitution or are enacted without following the procedures laid down by the law. Using a model of constitutional political economy, where policy making is subject to judicial oversight, it is predicted that the relative size of the public sector decreases as judicial review and judicial independence increase. The theoretical predictions are tested in an international cross section sample of 52 countries. Controlling for the effects of real income, age, dependency, openness of the economy, the legal origins of a country and other socio-political variables the results show that the checks and balances provided by the judiciary lead to a smaller relative size of taxes in the economy.