Question

Just a curious question, if consumers and producers VOLUNTARILY transferred some of their gains to the government. Could all parties (government included) be better off than they were with a tax?

Answer 1

But the amount transferred would be subject to the whim of each individual, right? And is such a case, any government would never be able to predict what kind of a sum they are going to end up with. And in such a case, how will they plan their expenditure ?

Taxation allows the Governments to have a ball park figure in mind, taking into account the various economic data they have access to.

Answer 2

Since government expenditures in public goods cannot be easily measured in the market (if at all), then there would always be a pareto efficiency argument for paying less: since you can't tabulate the benefit, but can the costs, you'll always try to minimize costs.

There could be three types of individuals here: those who transfer more than average; those who transfer average, those who transfer less. Assuming that you are an optimizing individual, you would know that taxes paid by you, would be miniscule compared to taxes paid by society as long as the number of people is large. Hence, it is likely that you would pay less than the average. (A similar argument can be made for more than average and average as well, but I'd contest that this type of individual world dominate.)

Secondly, there will be a problem of information: how do you know what people are paying.

So, all in all, a bad and pretty infeasible idea.

Answer 3

Not that bad an idea because if most people didn't pay their due, public services and utilities would collapse and people would be forced collaborate and cough up the money. The government plays the role of a forum that facilitates this collaboration and takes economic decisions as an elected body on behalf of the people. So, in essence, taxation is voluntary. (Though deprived of individual whim).