Legal Liberalism or Liber Et Legalis? b.

Unger: One of a set of ‘forms of life’, each ‘a

John Finnis meaningful whole of the most comprehensive
kind’ which ‘embodies an entire mode of human
existence’, and each of which has ‘a unity of
About the Author: sense rather than of logic or causation

John Mitchell Finnis, QC FBA (honoris causa, Fellow of the

British Academy), is an Australian legal philosopher, jurist and
scholar specializing in jurisprudence and the philosophy of law. Roberto Unger:

He is currently the Biolchini Family Professor of Law at Notre

Dame Law School and Permanent Senior Distinguished (1) Six Types of Society

Research Fellow at the Notre Dame Center for Ethics and a. Tribal society

Culture. b. Aristocratic society

c. Liberal society

About the Article: d. Traditionalist

This chapter presents his brief unpublished essay on David e. Revolutionary-socialist

Price's critique of Critical Legal Studies (CLS) and defense f. Post-liberal

of ‘legal liberalism’. According to him, the latter category, much (2) Three basic problems of human association which these
promoted by Unger and others in the Movement, is not a safe forms of society deal with:

description of the rights and rule of law that Price wishes to a. Distribution of individuals among significant
defend against CLS antipathy and subversion. Indeed, groups

‘liberalism’ is not a term fit for use in doing legal or political b. Character of their relations to each other as
theory, as the example of Aristotle and Aquinas suggests; nor insiders or strangers

should we concede as much as Price does to CLS claims about i. T h e s o c i a l o r d e r b e c o m e s a n

contradictions in the law. association of interests that plays on
men’s need for each other’s approval
David Price:
[rather than on their participation in an
! Accepted that the alternative to Critical Legal Studies (CLS) identical vision of the truth and the
is ‘legal liberalism’
good].

a. Legal liberalism – a category, or term, much c. Way people understand the relationship between
promoted, if not invented, by the CLS movement what is and what ought to be

(Sections I to III)
(3) Central theme of consciousness and existence in liberal
! Accepted much of the CLS claim about ‘contradictions society is a peculiar set of interdependencies among
within the law and legal doctrine’ (Section IV)
three factors:

a. multiplication of significant groups with the

SECTION I: diminishment of the area of individual life
dominated by each group

(1) Positions central to liberalism are shared by conservatives b. disappearance of a sharp distinction between
(Price).
strangers and outsiders

(2) Liber et legalis homo – the free person

c. ideals are opposed to actuality

a. Lives in accordance with the law

(4) Advances the thesis which most immediately concerns us
b. Enjoys the freedom the law recognizes and now: ‘the legal order emerged with modern European
protects
liberal society’

c. Participates in the life of the law not as official a. Legal order - the type of law which is responsive
but precisely as citizen
to the ideal of the rule of law, law ‘committed to
(3) Author’s criticism:
being general and autonomous as well as
a. If individual rights and the rule of law are the public and positive’

defining features of legal liberalism, as Price b. Law is autonomous when:

maintains, and if the representative founding
fathers of liberalism are Locke and Blackstone,
as he also says, then the presence of such ideas
many centuries before Locke should make us
reluctant to accept the CLS claim that the
alternative to CLS ideals is legal liberalism.
religious’
i. the rules formulated and enforced by a
government cannot be persuasively
analyzed as a mere restatement of any
identifiable set of nonlegal beliefs on
norms, be they economic, political, or

b. We should conduct our conversations about ii. its rules are applied by specialized
rights and the rule of law without using the institutions whose main task is
term ‘liberalism’, or any other relativizing adjudication

term, at all.
iii. ways of justifying their acts differ from
c. CLS is a threat, not to liberalism, but to the ways used in other disciplines and
human rights (particularly the rights of the practices

vulnerable) and to the Rule of Law — that it iv. there is a special group, the legal
neglects or contemns or undermines, not an profession, manipulating the rules,
opinion or doctrine, however popular and staffing these institutions, and
fundamental to our society, but some important engaging in legal argumentation

truths about human dignity and justice.

(5) Question raised by the CLS – whether the assertion that
individuals have rights against the law, and that justice
SECTION II: requires the rule of law, can be held as justifiable and true
by someone who does not share the beliefs, the
Legal Liberalism:
‘consciousness’, which Unger calls ‘liberal’ (not whether
a. Price: Defined in terms of individual rights and the societies in which individual rights and the rule of law
rule of law
were first fully embodied were also ‘liberal’ in the ways
identified by Unger)

 a. Aristotle – clearly identifies and affirms the case

for the rule of law and not of men

b. Thomas Aquianas – identifies and affirms all the

features of Ungerian legal autonomy (except
perhaps the last, the existence of a legal
profession, which we perhaps see him taking for
granted in his many references to ‘jurists’).

(6) Aristotle and Aquianas, however, are not Ungerian

liberals.

a. Both deny that civil or political society is merely

an association of interests.

b. Both equally deny that social arrangements,

including justice and law, cannot in the real world
participate, in varying ways, in the true, the good,
the beautiful, and even the holy,

(7) Author’s POV: CLS threatens justice and certain

fundamental truths about human good and human
relationships, not liberalism (legal or otherwise).

SECTION III:

Author’s Criticism about Price’s Conceptions of the Rule of

Law and Individual Rights
(1) As to the rule of law – this account, which Price identifies
in terms of the actions of government being constrained by
legal sources, and of the political preferences of officials
being separated from the laws they administer, needs to be
supplemented by the other features of the rule of law
identified by Lon Fuller, Joseph Raz, and indeed by Unger.

(2) As to individual rights – misleading, or in danger of being

misleading, to use the spatial metaphors of a ‘zone’,
‘sphere’, or ‘realm’, whether of privacy or autonomy,
particularly if one reinforces the spatial character of the
metaphor by saying that the individual has rights ‘within his
or her private zone’. There is no zone or sphere or realm
beyond the rightful claims of other people and the rightful
authority of the law, no zone which could be identified prior
to identifying one’s rights.

a. No one can defend the proposition that whatever

is done within the zones identified by the Courts
is a matter of individual right beyond the reach of
rightful legal prohibition

SECTION IV:

Author’s Criticism on Price’s review that “legal rules

embrace contradictory aims and assumptions, and thus do
not perfectly serve any one of them”

(1) His only example of ‘contradictory’ principles (or aims or

assumptions) is in the quoted passage where Unger says
that alongside the freedom to choose the partner and
freedom to choose the terms are the ‘counter-principles’
that ‘freedom to contract would not be allowed to
undermine the communal aspects of social life and that
grossly unfair bargains would not be enforced’. But these
are not examples of genuine contradiction, or anything
approaching contradiction.

a. There simply is no statable principle of law that

one has no legal obligations to others except
those which one has freely chosen to adopt by
contract.

b. One cannot apply the concept of ‘contradiction’

to the principles of contract mentioned by Unger
except in the quixotic sense of ‘contradiction’

The whole law, on virtually every topic, consists of norms with

inbuilt limitations, qualifications, conditions, and the like. There
is no good reason to treat these limitations as contradictions or
as signs or forms of incoherence.

What is Law & Economics and How Could It Have o He and his followers were working on general
Contributed to Preventing the Global Crisis? d e t e r r e n c e a n d s p e c i fi c d e t e r r e n c e
Jacek Lewkowicz
instruments (Calabresi, 1970).

o In addition, Calabresi considered also issues

INTRODUCTION like income redistribution and allocation of risk
! Market phenomena, such as financial crises, tend to (Priest, 2005).

turn away from strict assumptions of neoclassical ! Functionalism of the Virginia school: Based on the
models. Their outcomes affect organisations, public choice theory. Public choice theory, in turn, is
households, individuals and states.
focused on non-market mechanisms of making
! Effects of market failures are multidimensional and may decisions or economic analysis of politics (Wilkin,
have both economic, sociological, or psychological 2005).

character.
o Another key assumption of functional
! Such market events relate to regulation. Sometimes approach is normative individualism. It means
suboptimal regulation leads to crises.
that the analysis of law is in this context based
on investigation of the structure of institutional
LITERATURE REVIEW
incentives (Parisi, 2004).

Origin and Evolution of Law and Economics

o Institutional law & economics covers issues
! Law & economics is concentrated on relations between
like efficiency or effectiveness of regulations,
economics and law

legal order, institutional equilibrium, evolution

o Mostly by analysing the law with economic
of legal institutions (Medema & Mercuro,
research tools.

2000).

! Notable precursors of law & economics were N.

o The core interest of institutional law &
Macchiavelli, T. Hobbes, Ch. Wolff, C. Beccaria, D.
economics is the interrelationship between
Hume, A. Smith and J. Bentham (Mackaay, 2000).

legal regulations and the economy.

o They dealt with non-market, but still economic

aspects of human behaviour (Posner, 2005).
MATERIAL AND METHODS
! First wave of research on law & economics occurred Research Apparatus of Law and Economics
around the middle of 19th century
! The beginnings of law & economics were generally
o Core idea: regulations are dependent inter alia theoretical. Scholars adapted theorems, concepts, and
on economic circumstances and individual research methods from economics in order to reveal an
rights may be distinguished from collective economic rationale of regulations.

resources (Bełdowski & Metelska-Szaniawska, ! Theoretical approach in law & economics faced
2007).
diminishing returns, probably because of the shrinking
o Focused mainly on the analysis of benefits of remaining areas of law to be analysed.

and costs from the perspective of economic o Pushed some extent scholars to switch into
actors facing scarcity of resources.
empirical, quantitative analysis of law.

! American institutionalism: concentrated on ! What is crucial from the perspective of law & economics
interrelationships between economic processes and is that the state provides a regulatory (institutional)
legal issues.
environment that motivates contracts that tend to
o Challenge some of the strict assumptions and allocate resources optimally from private initiative.
tendencies widespread in neoclassical Legal obstacles affecting transactions should be
economics, such as autonomous market eradicated from the legal system.

mechanism, static analysis, mathematical

formalism, market self-regulation and
separation of economic problems from
cultural or social background (Wilkin, 2004).
higher effectiveness or efficiency of law (Schaefer & Ott,
! The first modern school of law & economics evolved
Aims of Law and Economics
! Important goals of law & economics is to seek for a
2004).

at the University of Chicago. Interdisciplinary research ! Term of effectiveness of law is ambiguous and does
in economics and law was conducted among others by not have any common definition.

G. Becker and R. Posner.

o Lawyers claim efficiency of law as a proved
o Becker employed economic apparatus to his potentiality to achieve assumed legislative
analysis of crime, addiction, or tasks (Stelmach, Brożek, & Załuski, 2007).

discrimination (Becker, 1968).

o Economists, in turn, treat efficiency of law
o Posner made a crucial point about economic more broadly – as a capacity to reach
aspects of a deterrent role of legal assumed goals, but with the minimal usage of
sanctions and referred to rational approach resources (Stroiński, 2003).

undertaken by criminals (Posner, 1973).

! The economic approach towards legal regulations is
o Aspect of deterrence is closely linked with
the general issue of respecting the laws
(Chauvin, Stawecki, & Winczorek, 2011).
Deterrence incentives enhance the society to
based on an assumption that they should enable the
raising of the level of utility of individuals, relating to an
improved allocation of resources (Georgakopoulos,
2005).

act in line with the disposition stated in the ! Legal regulations may be imposed in order to lower the
hypothesis of the legal norm.
effects of market failures. Market regulations should
! New Haven school: Represented by G. Calabresi. His serve as incentives towards approaching the optimal
contributions include the distinction of direct costs of allocation of resources (Alexy, 2008).

accidents, costs of inadequate compensation of ! Legal regulations are formal institutions. In general,
losses and administrative costs.
institutions are characterised within the economic
 literature as systems of established social rules that ! What happened may be considered a regulatory
structure social interactions (Hodgson 2006). They failure – banks managed to take high risks in order to
put constraints on decisions and may be permanent achieve higher short-term profits, by evading the capital
or stable (Glaeser, La Porta, Lopez-de-Silanes, & requirements imposed by legislators, who were mainly
Shleifer, 2004).
hoping to mitigate risks present in the financial sector.

! Institutions are certain ’rules of the game’, ‘humanly ! Another aspect of the global crisis that has to be
devised constrains that shape interaction’ (North, 1990, considered is its behavioural character.

p. 3), and encompass both formal and informal systems o Economists failed in anticipating the financial
and enforcement mechanisms.
crisis and even contributed to it by
! From the economic perspective, institutions may encouraging the policymakers to perceive
cause positive or negative effects. The nature of more stability and risk sharing within the
these outcomes depends on the type of behaviour and financial sector.(Colander et al., 2009).

decisions that institutions legitimise and on the ! The crisis was avoidable. It was caused by failures in
allocation of resources that they cause (Leftwich & Sen, government and financial market regulations, corporate
2010).
mismanagement and inattentive risk-taking.

! Regulations function as a system of incentives imposed

on market agents. If regulations are valid and are
executed, they shall affect decisions of organisations Law and Economics in the Context of the Global
and individuals (Viscusi, Vernon, & Harrington, 2005). Financial Crisis
Regulations may be a solution to market failures, ! Advantages of law & economics compared to purely
market inefficiency, or market disequilibrium.
and separate legal or economic investigations are about
its ability to cover the whole range of causes of the
Market Failures and Institutions crisis.

! Social or market attitudes towards regulation may be
driven by the effectiveness of institutions. Some
institutions, either formal or informal, may be used as
tools for reducing market failures (Botero et al., 2004).
financial crisis was slow.
! The problem was a scarce amount of interaction or
collaboration between economists and legal scholars.
Response of law & economics to the latest global

! Market failures occur (Snowdon & Vane, 1998). By ! Taking into consideration how useful law & economics
market failures we usually consider setbacks in may be in predicting market crashes or dealing with
allocation and motivation, which are the basic roles their consequences, this research branch should be
of markets.
developed before additional incidents occur.

o Market failures evolve because of ! Higher popularity of law & economics will lead to a
incompleteness of markets, information higher number of researchers, better access to data,
a s y m m e t r y, i m p e r f e c t c o m p e t i t i o n , and the development of empirical tools, as well as
externalities, public goods undersupply and reconsideration of regulation or public policy.

problems with redistribution of income.

! Market failures are present in many markets and they

tend to differ across states and sectors.

o A great challenge is to manage the issue of

economic efficiency and keep a satisfactory
level of justice of allocation of assets, by using
legal regulations (Stiglitz, 1991).

o The logic of regulatory intervention of a state

is that if markets are not able to reach the
equilibrium by themselves and do not
converge towards effectiveness, reasonable
regulatory policy may correct this state
(Baldwin & Cave, 1999).

RESULTS AND DISCUSSION

The Causes of the Global Financial Crisis

! The recent global economic crisis brought the financial

system to its knees. Some attribute the severity of the
crisis to the behaviour of banks, which had evaded
regulatory capital requirements (Acharya &
Richardson, 2009).

! The magnitude of the financial crash was fuelled by a

large decline in lending by commercial banks. Then, it
affected the global financial sector.

! Emerging markets responded strongly and quickly to

the situation in the American financial system. Policies
undertaken in emerging markets to insulate them from
the U.S. crisis aftereffects, proved inadequate in the
view of changes in international trade and the credit
crunch, causing a sharp decline in financial flows
(Dooley & Hutchison, 2009).

Law & Economics in the Italian Constitutional
Jurisprudence: The Case of the Windfall Profit Tax on Energy
Companies
Luca Amorello / Stefano Maria Ronco
1. Introduction
to consumers as soon as the price of raw materials was
! In the judgment issued on 2 February 2015 (Law Decree n.
112/2008), the Italian Constitutional Court decided upon
the constitutional legitimacy of the windfall profit tax
imposed by the Italian government in 2008 on profitable
energy companies. This established the so-called Robin
Tax.
o provided a surcharge on the ordinary
corporate income tax, applicable only to
certain operators – broadly speaking,
undertakings in the energy sector – and only
under certain conditions – revenues and
taxable income exceeding certain thresholds
(3) income from risky activities, where the income is
! Two-fold perspective:
dependent on uncertain future developments like the
o attracted considerable attention from a strictly
Italian constitutional perspective as it derogates
from the traditional view by which the
decisions of the Constitutional Court which
lead to a declaration of unconstitutionality
entail a retroactive effect and trigger the right
of taxpayers to claim back the amounts
unlawfully assessed on its basis.
o As a consequence, it would be legitimate to
o the judgment at hand raises significant issues
from a fiscal policy perspective, as it
underlines an innovative interpretation of the
recently-constitutionalized principle of a
balanced budget expressed in art. 81 of the
Italian Constitution (focus of the article)
aimed at levying at a higher rate those
! Aim of the article:
windfall profits deriving from business
o To scrutinize the innovative approach
undertaken by the Italian Constitutional Court
in its review of constitutionality. In particular,
the ruling at stake is characterized by an
innovative law and economics analysis that
looks at the individual and aggregate effects
of such corporate levy as juridical
underpinnings against which testing the
constitutional legitimacy of the Law Decree.
business risk
2. Constitutional challenges in the 2008 Italian reform
establishing a windfall profit tax on energy companies
o Levy was aimed at neutralizing the excessive
The windfall profit tax: rationale, content, and externalities
! The Italian legislator introduced a permanent corporate
income tax surcharge for companies carrying out their
main activities in one of these fields: research and
exploitation of hydrocarbons; production and sale of
electricity; natural gas transportation and distribution; oil
refining and production and trading of petrol, gasoline,
lubricants, liquefied gas of petrol and natural gas
the State, free of charge, environmental emission
! Law Decree n. 101/2013 - any recharge of the surcharge
at hand to the final customers in terms of higher retail
prices should be considered unlawful
o Affirmed to be in conformity with European Union
! Rationale
o Set up a levy equivalent to the surplus revenue
obtained by the operators in the energy sector as
a consequence of the particular economic
conjuncture
allowances free of charge […]”
o Levy at a higher rate those undertakings whose
profits were strongly linked from the sales of
fossil fuels that –given the condition of the
international markets – had reached high prices.
levy at hand would be shaped in a way that ensures that
! The Italian legislator deemed that those revenue should be
considered windfall profits – derived from opportunistic
and speculative market operations, consisting, in particular,
in the exploitation of upward fluctuations in the prices of
commodities, as a way to increase the prices of
downstream products, but without lowering the resale price
decreasing
! The rationale involves the complex problem relating to the
significance of the element of risk as a typical condition
of the entrepreneurial activity
o Element of risk represents a corollary of the
notion of economic activity and constitutes a
prerequisite for the qualification of the notion of
entrepreneur
! Business Income Elements (in reference to the element of
economic risk)
(1) risk-free rate of return on the invested capital
(2) infra-marginal income from economic rents
success of innovative research, the exploitation of a
new market, the reliability of the existing workforce or
the stability of the political environment
! Not possible to identify a unitary notion of business
income, being necessary to differentiate business income
on the basis of the higher or lower kind of risk of the
activity which is from time to time carried out.
justify a diversified levy that takes into
account the specific degree of economic risk
involved.
o Shared by doctrinal positions that affirm the
legitimacy of forms of taxation specifically
activities
! Held that these profits derive from monopolistic rents
linked – for example – to legislative provisions and
regulations that attribute only to a selected number of
undertakings certain rights and permissions by law, or
related to contingent market conditions that allow some
industrial enterprises to exploit their dominance on the
market by generating excessive profits unrelated to any
! US Crude Oil Windfall Profit Tax (introduced in 1980,
repealed in 1988)
profits determined by undertakings operating
in the oil sector as a result of the deregulation
of oil prices
! Ibedrola Case
o No violation occurred with reference to the tax
scheme adopted by the Spain government that
aimed at limiting the benefits accrued to
undertakings operating in the sector of
production of electricity that had received from
rights freely tradable and transferable to third
parties
law those national provisions “under which the
remuneration for electricity producers is to be
reduced in order to counterbalance windfall
profits resulting from the allocation of emission
! Court of Justice has recognized the validity of tax
legislations – even when significantly hit the taxpayer as it
was demonstrated in the Iberdrola case – provided that the
the windfall profit is clearly distinguished from other profits
 generated by the undertaking, whose taxation should not
be subjected to any higher surcharge
constitutional provisions paved the way for reconsidering
The Italian experience in view of the constitutional judgment
! Subsequent to the mentioned decisions, the
Con s ti tu t ion al Co urt d eclare d t he R o b in t a x
unconstitutional as it violated the constitutional principles,
enshrined in the Italian Constitution in Articles 3 and 53, of
equality and ability to pay.
(1) The rationale of the Robin tax was to carry out a kind
of ‘qualitative discrimination’ between different forms
of business income, whose tax rate should be
differentiated even if, from a quantitative perspective,
the amount of wealth would be the same
constitutional interpretation”.
o Court assesses whether it would be
constitutionally legitimate to tax differently the
same amount of income whereas it expresses a
different ability to pay on the part of the taxpayer
m a i n s t re a m l a w a n d e c o n o m i c s a n a l y s i s b y
(2) the judgment goes on recognizing that the tax
surcharge was inspired by the goal of discriminating
the income produced by undertaking in the energy
sector and identifies possible justifications for such
surcharge
o Court highlights the fact that those entities carry
out activities within an industry with very high
profitability, low-competition and inelastic
demand (windfall profits)
up by the Italian government.
(3) Analysis of the Court focuses on the proportionality
principle, assessing whether the Robin tax represents
a proportionate mean chosen by the legislator – no.
discriminatory outcomes of the tax
a. The surcharge was imposed on the overall
taxable income, without levying only the
share of allegedly windfall profits related to
the energetic activities
oligopolistic pricing power by energy companies.
b. The levy of the surcharge did not reflect the
current ability to pay of the same energy
companies
profits earned by companies induce little changes on the
c. Impossibility of adopting tools able to avoid
that the surcharge is actually translated to
final customers by way of increased retail
prices
! The Court states that the indiscriminate application of its
decision with retroactive effect, allowing every taxpayer to
claim back what already paid, would likely affect other
constitutional values, as budgetary concerns – explicitly
taken into account in the newly-enacted art. 81 of the
Italian Constitution13 – would arise given that the
surcharge at hand constituted an important share of the
Italian overall internal revenue.
downside externalities associated to such an income
o The temporal effects of its judgment, then,
should take place following the publication of the
judgment itself on the national Official Gazette,
therefore denying the repayment of the sums
unduly levied up to that moment
Reasoning of the Court and its declaration of illegitimacy
! The Court evaluates that the total repayment of the
unconstitutional surcharge would result in a financial
outflow from the State, which, as a consequence, would
violate the balanced budget provision enshrined in art. 81
of the Constitution
not capable to pass these extra costs to consumers
o had the tax unlawfully levied been refunded, the
fiscal balance should be achieved only at the
cost of a new budgetary measure which would
affect the economically weaker sectors of society
! The effect of the Robin tax should not have a retroactive
effect.
3 Deconstructing the judgment: a law economics analysis
! In the last years a well-found economic approach to
the relationship between the legal settings of state
institutions and the economic underpinnings underlying
their rationale.
o Because of this, many constitutional and
supreme courts come out from time to time
with judicial reviews of legislations that take
into account the economic rationale of legal
phenomena
o Shedding new light upon the use of economic
a n a l y s i s “ a s a n o v e r a rc h i n g g u i d e t o
! Reasoning undertaken the Italian Constitutional Court not
only fully falls within such a consolidated law and
economics scholarship, but enlarged the scope of the
undertaking – for the first time ever – a concise
“macroeconomic” approach to taxation law.
! Decision of the Court has a twofold nature: (i) a micro-
economic dimension upon which the declaration of
unconstitutionality is founded; and (ii) a macro-
economic dimension that justifies the pronunciation in
favor of the denial to pay back the sums unduly levied
T h e m i c ro - e c o n o m i c d i m e n s i o n : i n e ffi c i e n c y a n d
! Economic rationale of the windfall profit tax lies into the
government’s efforts to redistribute the extra domestic
production income attributable to the exercise of
! Tax charge is thought to affect those markets which are
supposedly not competitive on their own and where large
supply side and are largely unreasonable.
! As no additional cost or effort has been incurred
to generate these extra profits, restricting the
magnitude of such extra income which ultimately
harm consumers, is generally considered morally
justified.
! The rationale of the government intervention therefore is to
be found somehow into a principle of “economic equity or
fairness”.
! Economic literature has scrutinized in details the
tax.
! Microeconomic analysis shall assess whether the benefits
generated by “economic equity” are outweighed by the
externality costs.
! Summing up, it is well recognized that these costs are
primarily related to the “second order” distortions these
windfall tax charges are capable to produce on the same
market.
1. This levy is frequently recognized to reduce
production. Energy producers are supposed to be
“price takers” selling at world market prices, they are
and, therefore, have to absorb them on their own.
Then production quantity goes down for any given
level of price. The cumulative deadweight losses
occurred are the opportunity cost of the tax charge
which in the long-run – if the levy is not restrained for
a temporary period only – may be quite substantial.
2. The lower production along with the imbursement of
the new tax charges, negatively influence corporate
earnings. The resulting lower dividend payouts for
 shareholders reduce stock prices of energy economics analysis where the optimality of the refund
companies, showing up the opportunity costs of denial is a function of the distribution of wealth among
shareholders that instead could have opted for private actors.

different more profitable investments.

! The economic consequences deriving from the
! Italian judges seek to disentangle and expose the true admittance of such a tax refund in times of
nature of the levy introduced by the Law Decree.
financial distress would produce an unreasonable
! They notice in particular the tax charge is not just wealth redistribution at the expense of the low
circumscribed to the extra-profits generated by income classes.

sharp increases in oil prices but it is calculated

based on the overall taxable income of energy Rethinking the relationship between constitutional law,
companies irrespective of any price change.
economics and fiscal policy
! Law Decree implicitly introduces a factual discrimination ! Italian constitutional doctrine has been rather reluctant to
between companies belonging to the energy sector and place its legal analysis within a consistent economic
companies not belonging to it.
framework.

o Primacy of constitutional norms has been

! Adoption of such income surcharge fails to achieve the
solidarity effects of a proper redistribution. Although the
Law Decree forbids energy companies to pass the new levy
costs to consumers. These costs in fact are ultimately
borne by consumers since this tax is presumed to increase
affirmed mostly often without considering the
microeconomic externalities and the macro
distributional effects that the same provisions
could entail.

o Constitutional legitimacy of legislative acts by no

in the long run the marginal costs and is not restrained in
its application by any time limit that may preclude such means has been grounded on the market
upward price move. As such, the introduction of this outcome of their implementation.

distorted windfall profit tax comes at the cost of eventually ! The judgment of the Italian Constitutional Court constitutes
harming general consumers, thereby contradicting the a path-breaking analytical paradigm for a constitutional
microeconomic significance of the equality principle.
review based on the interplay between the constitutional
! Court logically argues the tax charge has no redistributive foundations of the State and the expected (micro and
benefits or welfare improvement effects that may macro) economic utility of its legislative acts.

reasonably outweigh the deadweight losses determined by ! Principle of budgetary responsibility is not only deemed as
its application.
the macroeconomic backstop aimed to constrain excessive
public expenditures, but it also represents the basic
The macro-economic dimension: the right of tax refund and premise upon which economic interactions in the
the principle of government budgetary balance market are settled.

! By widening the normative content of article 81 of the ! As it was previously noted, this levy – to be constitutionally
Italian Constitution – which lays down the principle of legitimate – should not only be consistent with the
budgetary balance – the court justifies its stance microeconomic notion of “economic equality” between
on rejecting any tax refund in light of the negative market participants, but it should also not endanger the
aggregate costs and macroeconomic imbalances.
macroeconomic objective of budgetary equilibrium pursued
by government in accordance with the Constitution.

These are there justifications:

1. A judgment in favor of a tax refund would pose a threat

to the fiscal equilibrium of the State balance sheet,
thereby endangering the Government’s capability to
assume its budgetary responsibility and carry on its fiscal
policy smoothly. The budgetary disequilibria thus
determined would be particularly worrisome when looking
at the capacity of the State to service its own outstanding
debt in the aftermath of the tax repayment.

2. Court acknowledges that the imbursement of the tax

refund would require the government to take on an
additional fiscal maneuver as to guarantee the stability of
public finance.

On one side, this fiscal adjustment would be necessary because

of the principle of budgetary responsibility
constitutionalized. On the other side, the fiscal
adjustment would be required, more widely, as to
comply with the convergence criteria originally laid down
by the Maastricht Treaty, which provides that limits on
government debt and budget deficit are nonetheless
binding reference values for public spending of EU member
States.

3. Macroeconomic assessment of the Constitutional Court

ends up by looking at the distributional effects that any
such tax refund would produce into the Italian economy. In
particular, the Constitutional Court sketches out a welfare
INFORMAL NETWORKS AND JUDICIAL DECISIONS:
INSIGHTS FROM THE SUPREME COURT OF THE
PHILIPPINES, 1986–2015 - BJÖRN DRESSEL
Issue: To what extent do informal networks shape the
decisions of the Supreme Court of the Philippines?
Members first appointed, the representative
Data set: We examine the link between informal ties,
inferred from university studies, work affiliations, and
seniority, and decisions in 47 Philippine SC decisions on
political cases between 1986 and 2015.
year.
· Term: The regular Members of the Council
shall be appointed by the President for a
term of four years with the consent of the
Commission on Appointments. Of the
of the Integrated Bar shall serve for four
years, the professor of law for three years,
the retired Justice for two years, and the
representative of the private sector for one

Informal relational dimensions: peers, ideological Controversial decisions on high profile cases:

communities, party alignments, and ideational, identity- · 1986: Legitimacy of confirmation of Pres Cory
based, or clientelistic networks
administration after EDSA revolution

· 2001: Deemed resignation of Estrada and
Qualifiers:
legitimacy of GMA’s presidency

1. Draw on insights in social network theory (e.g., · 2012: impeachment of CJ Corona (appointed
homophily and propinquity), we do not claim that despite 60 day consti ban on appointments before
social ties correlate with votes for or against the presidential elections) for abuse of power, betrayal of
presidential administration in power; rather, we see public trust linked to GMA’s corrupt behavior

them as creating personal loyalties that make · 2018: removal of CJ Sereno via quo warranto

justices vote as a cohort in either direction because

they transmit certain kinds of pressure.

Tate’s study – Justices closely tied with Philippine elites

2. while we focus on the diffusion of political
(presidential) and hierarchical (CJ) pressures through
these networks, we do not deny that other
mechanisms may also be at play (e.g., presidential
appointees sharing similar legal views and strategic
- traditionally not been as representative as other
political elites in terms of regional diversity, university
background, or professional sources for
appointment. Four decades later, the bench since
1987 (Table 1) shows little change.

calculation about a dissenting vote), but we also - Supreme Court have been graduates of only
consider them to be embedded in social ties of six, of which two, Ateneo de Manila University and
loyalties and friendship formed over years.
the University of the Philippines, account for about

64%. Some regions, such as Luzon, are over-
THE RELATIONAL PERSPECTIVE represented relative to population; others, such as
SC – established in 1901 under US colonial tutelage part Mindanao, are under-represented – an illustration of
of Commonwealth of the PH in 1935
the traditional bias of elite socialization in the capital,
- called upon regularly to review the Manila, and surrounding Luzon. Most justices have
constitutionality of cases of considerable policy been appointed from within the judiciary (60%),
consequence
followed by academe (12%) and the executive
- but then succumbed to Pres Marcos which branch (12%). However, the shares fluctuate
prompted Pres Aquino to repopulate the bench
considerably – a hint of each president’s influence on
- in 1987 Consti also granted the court expanded appointments.

powers and safeguards, including the power to

determine if there has been an abuse of power

JBC – created to insulate judicial appointments from
- JBC shortlist 3 candidates to Pres to appoint to politics and ensure that appointees are of proven
SC
competence, probity, and independence

Composition of SC
Issues: Presidential staff influence JBC members
· SC: 1 CJ, 14 Associate Justice=15 appointed by shortlist candidates, or networks to lobby the pres
Pres
and staff for specific candidates once the list
· Sit in division of 3, 5 or 7, unless decided En submitted leading to compromised nominations that
banc
lacks transparency. Ignoring candidate’s integrity
· Term: until 70 yrs old or if incapacitated/ and rand order even occasionally expanding JBC’s
impeached
shortlist

Composition of JBC (Judicial and Bar Council) – Sec 8, Effect to votes: Pres appointments to SC or
Art 8 of 1987 Consti
elevation to CJ generate loyalty to Pres patterns of
· created under the supervision of the gratitude, obligation, and deference dominate social
Supreme Court composed of the Chief interaction in the Philippines. Gratitude then lead to
Justice as ex officio Chairman, the vote as pro-president cohort in politically sensitive
Secretary of Justice, and a representative of cases. Seniority, friendship, and shared professional
the Congress as ex officio Members, a and educational allegiances might have affected
representative of the Integrated Bar, a votes.

professor of law, a retired Member of the

Supreme Court, and a representative of the THEORY AND HYPOTHESES

private sector.

 Issue: What motivates judges to decide cases as 3. Seniority shapes the flow of information among
they do
justices. This in turn reflects a common dynamic: junior
what influences shape their decisions are justices often defer to senior justices – a fact recognized
traditionally at the centre of scholarship on judicial by a rule that in en banc decisions, judges vote in reverse
decision-making
order of seniority.

1. Legalist Theories – emphasize that decisions

conform to precedent and legal norms, centering on 2 hypotheses proposed for how the Supreme Court
constitutional and doctrinal variables (e.g., rules bench behaves:

found in legal materials, constitutional and statutory (1) Justices connected by university and professional
texts, and precedents of the same court).
networks are likely to exchange information and
2. Attitudinal models – Downplaying the constraints constitute an informal group that can generate
of law, attitudinal models argue that ideological momentum to vote together; and

positions and policy preferences shape judicial (2) two situations in particular may influence how each
decisions
justice votes:

3. Strategic-rational models – acknowledge that the (a) a justice appointed by the president in power
policy preferences of judges must also take account may seek to influence other justices in the same
of intra-court and government interactions
networks to vote in the president’s favour –

illustrating informal political pressure, as in the
Critique of some scholars: questioned the singular focus attitudinal model; and

on judicial preferences related to legal policy, suggesting (b) justices who share networks with the CJ are
that judges may also pursue personal goals, such as likely to vote the same way in important cases –
their standing with the public and legal audiences; career illustrating informal hierarchical pressure on the
considerations and aspects of workload and leisure time; bench.

or maintaining collegiality on the bench

METHODS AND DATASET
Judicial networks can also be based on:
47 Philippine Supreme Court decisions between 1986
political interests (partisan or ideological) or patronage and 2015, chosen based on:

and clientelism (often reinforced by cultural, regional, or (1) coverage on the front page of two major newspapers;

religious ties) – though none of these is easy to capture. (2) citations in publications about the Supreme Court;
Networks may also differ in the extent to which they are and

formal (e.g., alumni associations, legal fraternities, and (3) vetting by two local experts.

sororities) or mainly informal (e.g., friendships). Whatever Megapolitical cases are of particular interest because of
the case, networks generally form through repetitive anecdotal evidence that they are most likely to trigger

interaction, and their dynamics are guided by informal The individual votes of each justice in the 47 cases give
norms – loyalty, authority, reciprocity, and personal us 618 observations.

benefit – that often directly compete with professional Slightly more votes were favourable to the administration
norms and the desire for standing with legal and public in decisions made during the administration of the
audiences.
president who had appointed most or all of the judges;

except for the first Aquino presidency, little difference
ISSUE:
between administrations was found.

(1) whether social ties affect the direction and pattern of

a justice’s vote; and if so,

SNA (Social Network Analysis)

(2) what the magnitude of this effect is. Thus, we probe a common technique to describe and predict personal
the extent to which a justice’s decisions are independent interactions. The two principal networks of concern here
or possibly influenced by social ties.
are the university and the work-related (see Figure 1).

Several assumptions based on social network theory:

Relationships between justices are captured through a
1. Given shared professional and educational pathways, separate adjacency matrix W (the connectivity matrix) for
many justices might have social ties with each other due university and work affiliation. We also impose seniority
to propinquity (geographical closeness) and homophily on the data to capture the hierarchy of social interaction
(the tendency for people to have positive ties to those within the bench. We construct each adjacency matrix as
similar to themselves); they probably knew each other follows:

before being appointed; and some might even have

become friends.

2. Such university or professional networks facilitate

exchange of information – for example, about judges’

voting intentions. It has been widely reported that not

only do justices meet to discuss cases before the final

vote but also that the topics carry over into personal The two adjacency matrices constructed are university-
conversations. In fact, instances of CJs attempting to affiliated, W (univ) , and professional work background,
muster clear majorities in high-profile cases suggest that, W (work) . Seniority is introduced on the assumption that
occasional last-minute swings notwithstanding, voting senior colleagues exert more peer pressure than juniors.
intentions are well-known. 18
The diagonal element of matrix W is always zero. Though
the maximum number on the bench is 15, the actual
number varies by case, as does the adjacency matrix. In When a justice knows the CJ personally, the CJ might
our sample, the average is 13.34, the median 14, and the exert pressure to vote in the same direction.

range 7–15.

REGRESSION FINDINGS
Next, we construct several independent variables,

considered to explain individual votes, based on The dependent variable is binary, 1 for favorable to
dominant academic models for the regression analysis. admin, 0 if not

The definitions are as follows:

Panel data structure is highly unbalanced, therefore used
1. Presidential appointee: takes value 1 if the justice was random-effects Probit model and estimated the
a p p o i n t e d b y t h e p re s i d e n t i n p o w e r w h o s e parameters by maximum likelihood.

administration is challenged in the case, zero otherwise.

2. Female: takes the value 1 if the justice is female, zero Model-1: baseline regression model
otherwise.
Findings:

3. Age at decision: is the age of the justice when the case - female justices are less likely to vote with the
was decided.
administration in power in high-profile cases

4. Presidential tenure at decision: is the duration of the - Age at decision is not statistically significant.
presidential administration in power when the decision Nor is professional background, though both
was made. Except for the Estrada and Arroyo academic and private practice backgrounds show
administrations, the maximum year is 6; the average for negative signs.

the Estrada administration is 2.28 years, and for the - Decisions against the current administration are
Arroyo administration 9.29 years.
more likely toward the end of the presidential term
5. Professor of Law: takes the value 1 if the justice as presidential tenure at decision is negative and
worked as an academic before appointment, zero significant at 1%. This is consistent with possible
otherwise.
strategic ‘defection’ as a presidential term is ending

6. Public official: takes the value 1 if the justice worked in

the executive branch before appointment, zero Regression models with social network variables
otherwise.
4 new social network variables:

7. Lawyer: takes the value 1 if the justice has experience I. Presidential pressure

as a lawyer in private practice, zero otherwise.

1. University and presidential appointment

2. Work and presidential appointment –
Among the 5 occupational categories majority group are statistically significant ( at 5%)

from career “judiciary”

· Findings: Both networks increase the

likelihood of voting for the presidential
Additional independent variables: to represent social administration in power, but only work-
pressure on and off bench, influence of individual votes
related ties have shown an effect in our
Hypothesis 1: (political influence from the president): the cases.

vote of a justice who knows other justices appointed by II. CJ pressure

the president in power through a social network is more 3. University and CJ vote

likely to favour that president.

4. Work and CJ vote

· Findings: CJ pressure via work-related

ties is slightly stronger than via
educational ties, but the difference is

negligible, as illustrated in Figure 3. The

result indicates that if a justice knows

the CJ personally through university or
To examine loyalty to the president in power transmitted work affiliation and the CJ votes for the
through senior fellow justices on the bench, in addition to president, the probability that the justice
the individual loyalty to the president for reasons loosely votes with the CJ increases by 20–30
similar to the attitudinal model as measured by percentage points.

presidential appointee.

Taken together, the findings suggest that informal
Hypothesis 2: (hierarchical pressure from the CJ): here political linkages (presidential pressure) and
we draw attention to the pressure exerted from the CJ. hierarchical pressures (from the CJ) are important in
Justices who share networks with the CJ are likely to animating the voting behaviour of individual justices.
vote the same way in important cases.
This both lends further support to widespread

anecdotal evidence about informal influences on the
Supreme Court of the Philippines and raises
questions about how independent its bench is.

CONCLUSION
political–presidential and hierarchical pressures via the

CJ exerted through networks did influence the voting

behaviour of individual justices.

One might argue that presidential appointees share the

same view about the law and thus hear similar arguments
being made, which enhances the chances of a justice
voting for the administration; there might also be
strategic calculations at play that inhibit the vote against
the presidential administration in power. And yet, the fact
that similar arguments are heard and perhaps more
favourably considered by, or group pressures are exerted
on, certain individual judges more than others are
precisely what would occur if networks are affecting the
bench, since most networks are formed because of long-
standing social ties formed over years of educational and
professional relationships with others who think similarly.

party capability theory – characteristics of litigants

Related Question: is the CJ network simply a direct

(perhaps more efficient) extension of presidential
influence?