The Article proceeds as follows. Part II offers a primer on the Coase Theorem, beginning with the classic case of neighbor externalizing on neighbor (farmer and rancher), and it explains the basic invariance propositions. Part III shifts the focus to Coasean situations involving buyers and sellers in a market or contractual relationship, buyers and sellers whose market interactions cause harm to third parties. Using supply-and-demand diagrams, we illustrate (in a new way) some of the most basic findings of the economic analysis of law, including both the Coasean invariance and efficiency propositions and the Calabresian least-cost avoider idea. Also in Part III we make an efficiency argument for vicarious employer liability for employee torts and suggest this doctrine in theory could be expanded in certain situations to (1) independent contractors and (2) torts beyond the scope of employment. Our analysis builds on the standard law and economics analysis of vicarious liability, but emphasizes the need to minimize not only the costs of third-party harms but also administrative costs. Part IV then moves from torts to tax-specifically, to taxes triggered by buyer/seller market relationships, such as employer/employee interactions. That Part uses supply-and-demand curves to illustrate the tax remittance invariance propositions in their classic form, as found in every public finance textbook, under the assumptions of zero (or symmetrical) compliance and administrative costs. Part IV then uses those same diagrams to explain how the invariance propositions no longer apply under the more realistic assumptions of asymmetric compliance and administrative costs. More specifically, we show that the optimal assignment of tax remittance responsibility (as between buyer and seller) turns on which assignment minimizes the sum of compliance and administrative costs incurred to raise a given amount of revenue. We argue that, in general, the least-overall cost tax remitter, for taxes triggered by buyer/seller transactions, will be the larger, wealthier party-both because there are economies of scale to enforcement against large tax remitter's and because wealthier taxpayers are less likely to be judgment-proof. Part V discusses some of the real-world implications of our analysis, both normative and positive. As a positive matter, our analysis provides an explanation for why the U.S. income tax system and most other income tax systems require employers to remit the bulk of their employee's personal income tax liabilities. Likewise, our analysis explains why the remittance obligation for sales taxes is usually imposed on sellers rather than buyers. In addition, our framework explains why tax remittance obligations are generally made mandatory (or nontransferable) in the sense that Coasean bargaining over the tax remittance obligation is not permitted. Finally, our analysis also helps to explain why the remittance obligation for the gift tax is imposed, initially, on the donor and, secondarily, on the donee.
Logue, Kyle D. "Of Coase, Calabresi, and Optimal Tax Liability." J. Slemrod, co-author. Tax L. Rev. 63, no. 4 (2010): 797-866.