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Could a government work without taxes or are taxes required?

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I know that taxes are how all levels of government are funded, from city taxes all the way to federal taxes.

It would be nice if I could have a tax free government in my world, since taxes have their disadvantages, such as governments misdistributing them and rates too high for the poor.

But the advantage is that the person running for office pretty much only has to do meetings and law making and/or vetoing.

But the likelihood of the disadvantages being prominent, especially in an advanced civilization is high.

And by the way, if my people have any military, it would be a weak military(spears and bows and arrows but no guns) and only an army at this point(Though they might have an airforce sooner than the rest of the branches of the military).

So war at this point is not ideal, not only because of low population and most of the planet being remote but because of the points I made about a possible early civilization military.

In fact war is not ideal in any point in history whatsoever.

And yet it happens to this day. North Korea and South Korea are still technically in a war because they never signed a peace treaty.

But anyway, could a government work without taxes and instead get their money some other way? If it could, how? If it can't, why not?

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    $\begingroup$ Perhaps in a sustainable, automated world, but that would not be what we typically mean by "government". Is it a requirement that your government be a traditional governing body, a bureaucracy of hierarchical branches with offices filled by people whose job is to manage the functional parameters of society, or can it be something else? Because many of the jobs of government may one day become fully automated, if not all of them. Don't forget that ultimately all taxes go somewhere and end up as someones salary ( even if that person is not a member of a governing body, but say a contractor ). $\endgroup$ – Nolo Jan 6 '17 at 6:05
  • $\begingroup$ If you're trying to pull this off, how do you define "taxes?" The more wide you define the word "taxes" to mean, the harder it is going to be to pull off a taxless government. $\endgroup$ – Cort Ammon Jan 6 '17 at 6:27
  • $\begingroup$ State owned enterprises. The largest energy utility in Sweden — Vattenfall (means "waterfall") — was state owned, as was the telephone company, the railway operator and a bunch of others. $\endgroup$ – MichaelK Jan 6 '17 at 8:41
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    $\begingroup$ Taxes are a huge public and social good. Their removal is not any kind of positive. $\endgroup$ – Jack Aidley Jan 6 '17 at 13:02
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    $\begingroup$ @JackAidley Taxes are not a public and social good directly. They do enable public good by giving the government a way to wield financial power, but they themselves are not the social good. $\endgroup$ – Cort Ammon Jan 7 '17 at 0:51

17 Answers 17

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Of course it can, and in fact, does. State owned monopolies, e.g., roads, lighting, etc. often come with tolls for maintenance. You simply increase the number of such monopolies and add a margin for the state's own expenses.

This is a bad idea for many reasons. Firstly, you do not want the government to directly participate in the economy. Whether communist or capitalist, both groups agree that the role of the government is to provide a level playing field. Allowing the government to have its own economic interests in the market leads directly to fascism. The government, like any other entity, will seek to enrich itself at the expense of all others. Since governments aren't exactly well coordinated, that actually means that some individuals in the government and their networks benefit at the expense of everyone else.

Taxation is actually the best method we have for controlling the government. It regulates how much wealth/power/resources the government can build up at any point, and hence control the laws, specifically, how they are enforced. While it is easier on one's pocket, in the short term, to have the government raise all its money through business ventures, in the long term, it actually works out worse.

Your government is a service provider, providing those services, which are essential to the community, but nobody is willing to pay for as an individual. While you can ask that the government use the profits from it's own business to pay for the work it does, the self interest question arises: what's in it for them? And if you believe that a collection of individuals are going to consistently sacrifice for the good of the community, think again. They will, and do, act in their own interests. Controlling the purse allows us to control these individuals, or at least limit the harm they can cause. Giving them free rein is giving them free reign.

The problem with existing representative democracy systems is not with the government, but with the people. Uninformed, callous voters elect representatives based on popularity, rather than competence. A recent US election had a slogan of, "Who would you rather have a beer with?" Nothing to do with, "Who looks after your interests best?" The result is electees with no integrity, and no competence, failing to do their jobs while enriching themselves at the taxpayers' expense. A major cause of corruption is, in fact, incompetence. People who don't know how to do what they've signed up for are more likely to take the easy way out, especially if there is an immediate reward, rather than make waves and bring attention to themselves, where their lack of capacity becomes apparent. See: Emperor's New Clothes.

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    $\begingroup$ "Whether communist or capitalist, both groups agree that the role of the government is to provide a level playing field." Huh? Do you live in a parallel universe? Government control of the economy (means of production) is a basic tenet of Communism. The alternative is to leave the means of production in the hands of potentially ideologically unsound (or even counter-revolutionary) individuals, and That Will Not Do. $\endgroup$ – WhatRoughBeast Jan 6 '17 at 6:08
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    $\begingroup$ @WhatRoughBeast: Not exactly. Both groups agree that the government's job is to provide a level playing field. The difference is HOW. Communist doctrine is, as you have stated, for the state to own the means of production and give everyone equal access. Stalin's USSR was nowhere close to classical communism. Classical capitalism is a bit harder, as there are too many... sects...involved. The basic idea though, is that the government only intervene where there is not economic benefit or where individuals cannot be trusted to be unbiased, e.g., law enforcement, defence. $\endgroup$ – nzaman Jan 6 '17 at 6:28
  • $\begingroup$ @nzaman It seems like you are mixing up government and state, the government is an organ of the state with the purpose of creating and removing laws and regualtions to keep a country running. Providing services for the community is a direct job of the state. And there a lot of state owned businesses, and they have proven to be much more reliable and effective than private businesses if it goes to necessaries or businesses where the interest of growth does interfere with public interests. A good example are prisons, they have an interest in high crime rates to gain more prisoners and therefore $\endgroup$ – Etaila Jan 6 '17 at 12:02
  • $\begingroup$ more profits. While a state has less interest in making more profit within one prison than reducing losses and problems due crime and keeping people in these prisons. Most states have state owned prisons only a view have private, the US are one of theses view states and they are also with the most people in prisons of the western world as a direct result and it is getting worse. $\endgroup$ – Etaila Jan 6 '17 at 12:05
  • $\begingroup$ @Etaila: True, "state" does make more sense than "government". In most systems, though, they end up being the same thing, or at least refer to the same group of people. $\endgroup$ – nzaman Jan 6 '17 at 14:00
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Is "your world" supposed to be an utopia or a dystopia? Is your story, or game, or whatever going into economic detail or glossing over it?

No Funding means No Government Activities

There are some who say that they want no government at all. Often what they mean is that some typical government structures are replaced by volunteer, informal, or non-coercive structures. Personally I believe that is a form of government as well, and "voluntary" contributions collected by social pressure are taxes. Only without the transparency provided by clear rules and a paper audit trail.

Different Ways to Collect Funds

I can think of very different approaches to government funding ...

  • Classic taxes, from income taxes to sales taxes to poll taxes. People can argue endlessly which is the most fair or the least unfair.
  • Usage "fees" on specific acitivities by the citizen. I use the quotation marks because those "fees" are taxes, too, unless the citizen is truly free not to use those government facilities, see the answer by WhatRoughBeast. Tolls on a government road? That's a tax unless there is a private road to chose instead (perhaps with tolls, too.) Fees for getting a driver's license? That's a tax unless one can drive without it or get it elsewhere. If the "fees" are not taxes, see the next point.
  • Economic activity by the government, which boil down to the collection of interest on assets or the sale of those assets. The former includes the management of government-owned factories or land. The latter is not sustainable. As nzaman wrote in his answer, economic activity by the government has severe side effects.

Summary

Either the people in your world are deceiving themselves, or they live in a post-apocalyptic war zone.

Note: This kind of self-deception isn't unusual. Is the PBS a "state TV" or something entirely different? Is the SSN a "national ID" or something entirely different?

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    $\begingroup$ Eliding the difference between State TV (which is under the editorial control of the government or, at least, heavily controlled by it) and Publicly funded TV (which is merely funded by public funds, and usually mandated to be editorially independent of government) does no-one any favours. $\endgroup$ – Jack Aidley Jan 6 '17 at 15:09
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    $\begingroup$ @JackAidley, I gave those two examples to explain why "taxes" and "fees" may be difficult to tell apart. See the comments to WhatRoughBeast's answer. Of course I could have written "mind your definitions" but that's too abstract. $\endgroup$ – o.m. Jan 6 '17 at 16:30
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    $\begingroup$ Yeah, Governments without the ability to collect taxes have been created, they don't last very long however becasue they can't do anything. $\endgroup$ – John Jan 7 '17 at 16:44
  • $\begingroup$ Usage fees are not taxes. Additional profits beyond the cost of providing the good or service in question is the tax, but a 10 dollar fee for a driver's license is not a tax if it costs 10 dollars to provide (often the costs are grossly in excess of the fees which makes the activity subsidized not taxed). $\endgroup$ – pluckedkiwi Jan 8 '18 at 19:30
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Of course it can - it simply need charge citizens for services rendered.

Your house has been burgled? No problem. When the friendly officer shows up, you pay him to investigate the crime. No pay, no investigation.

Your house is on fire? Pay the firefighters when they arrive and they will gladly put out the fire. Or, as has occurred in the past, you show them your receipt for your protection plan. If you didn't buy such a plan they go back to the fire house and leave you to it.

Universal education, of course, becomes a thing of the past - since the poor cannot afford to pay for properly trained teachers, their children don't get to go to school. (Note: there is no need to go into the shortfalls of current US educational standards - we're talking larger principles here.)

Military forces, of course, are either entirely voluntary or support themselves by invading neighboring countries. In either case, there are severe drawbacks to the situation. Among other things, defense research is unlikely to be well-funded, and your forces are likely to suffer when they butt heads with real soldiers.

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  • $\begingroup$ Taxation IS a payment for services to be rendered. The government says this is what we'll do the next year, this is what it'll cost. The public, through their elected representatives, negotiates and settles, and taxes are assessed accordingly. $\endgroup$ – nzaman Jan 6 '17 at 6:03
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    $\begingroup$ @nzaman - You've missed the point, Taxes are not paid for services rendered, they are paid to ensure that the services are available to all citizens. My tax dollars support the police, but I've never been a crime victim. My tax dollars pay for firemen, but my house has never caught fire. I pay for my town's school system although I have no children. In a non-tax society I would not need to pay for any of those services if I did not wish to - and were willing to take the risk that I never would. $\endgroup$ – WhatRoughBeast Jan 6 '17 at 6:14
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    $\begingroup$ You don't pay insurance because you expect your house to catch fire, you do it to have a safety net, in case it does. The same with the police: with somebody actively working against crime, you have a better chance of not becoming a victim yourself, and also so that if the worst does happen, you don't have to go looking for money before looking for help. It's the same principle as why part of a hospital's bill is used to fund the Accident & Emergency Department, even if you are an outpatient. The actual patient there is in no position to cough up, money, that is. $\endgroup$ – nzaman Jan 6 '17 at 6:34
  • $\begingroup$ @nzaman You're still missing the point. Redistribution of wealth is a big part of taxation. If you're well-off and/or have lower needs, you will pay more in taxation than you receive in services. If you're poor or have more needs, you will get out more than you pay in. That can't be replicated by a market system. $\endgroup$ – Mike Scott Jan 6 '17 at 7:17
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    $\begingroup$ @WhatRoughBeast That is your opinion. If the police just attempted to catch criminals after a crime was reported they'd be ineffective, since the first police forces emerged (in London to reduce theft from the docks) a major part of their job was to deter crime by patrols. That hasn't changed, patrolling troubled areas is still part of a strategy of crime reduction and prevention. Service rendered includes patrols and guard duty. $\endgroup$ – inappropriateCode Jan 6 '17 at 13:25
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It is trivially easy to have a government without taxation; but it is likely impossible to have a government without something that can be considered to be functionally a form of taxation. Some possibilities are:

  1. Independent revenue streams: State ownership of natural resources, key industries, or whatever. This is functionally equivalent to a form of taxation because the state is claiming ownership of a percentage of the productive economy.
  2. Sale of monopolies or permits: The government could fund itself by selling monopolies or permits to businesses or individuals that allow them to carry out activities. This is functionally equivalent to taxation applied to businesses or activities in this area.
  3. Land rent: The state owns all land and funds itself by renting the land to its users. This is functionally equivalent to a land tax.
  4. Fines levied: The government could fund itself by increasing fines levied; both in value and the range of trivial infringements that attract fines. This acts as a form of regressive taxation or sin taxes depending on implementation and social effects.
  5. Just print the money: Government isn't really funded from taxes anyway. It's a convenient fiction. It literally makes up the money to fund government activities and then destroys money through taxation. It is conceivable that a government could instead just print the money. This would result in inflation which would act as a general tax on accumulated wealth. It is unlikely to be able to sustain a high quality state since the inflationary effect would collapse the economy but could conceivably work with a highly diminished state in the kind of impoverished society and economy that entails.

All of these possibilities would have other impacts on the state-citizen relationships beyond the nature of taxation.

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  • $\begingroup$ The risk with "just print the money" is that the economy decides to ignore your money as worthless and use something else as it's token of trade. $\endgroup$ – Peter Green Jan 8 '18 at 17:32
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What you're proposing is basically a sort of anarcho-capitalism. Without funding via taxation there simply can't be government in the traditional sense, and you'd have private corporations instead.

However this idea is fraught with dangers because corporations don't have a vested interest in regulating themselves or benefitting consumers. They exist only to maximise profit. A police force and legal system which exists for profit is kind of terrifying.

Many however would argue that markets and corporations do self-regulate effectively, but this argument is based in faith and not evidence. That is the opinion of the Bank of England and its Governor Mark Carney. His September 2015 speech "Three Truths for Finance" describes three lies commonly believed of modern finance: this time is different, markets always clear, and markets are moral.

"Beneath the new era thinking of the Great Moderation lay a deep-seated faith in the wisdom of markets. Policymakers were captured by the myth that finance can regulate and correct itself spontaneously. They retreated too much from the regulatory and supervisory roles necessary to ensure stability"

That applies however to a high tech civilisation, and to those developed nations who have diverse economies. In comparison, Saudi Arabian citizens pay no tax, all education and healthcare is free, and even receive a grant towards their first house when they marry. But Saudi is an oil rich economy, and their state oil company Aramco allows the government to afford a generous welfare state, on top of basic government expenses. So if the economy of this place is resource rich, then the state has enough revenue via exports to pay for itself and doesn't need to tax its people at all.

I would also caution that primitive weaponry doesn't discourage war; which was frequent in the ancient world because plunder was profitable. Each urban area was a source of resources and slaves, which could be stolen if you had more soldiers. The fact they had spears and bows was besides the point. Indeed conquest was still profitable until relatively recently, see European imperialism. Which was another way of extracting free labour and resources. Nowadays the cost of war is high, and the rewards low. America couldn't extract much, if anything, of value from Afghanistan after invading; but it cost a lot of money to send soldiers out there and keep them out there.

The ancient world also has plenty of examples of relatively low tax systems, largely because tax was rarely necessary. The economy was almost entirely agrarian, and almost everyone was a subsistence farmer who could provide for themselves (minus famines). The idea of income tax as we understand it is a very modern invention; it came about when Britain needed to pay for the Napoleonic Wars, and stayed around thereafter because reasons. And that's how taxation generally had been for centuries prior; required only in exceptional circumstances, like major wars.

Other systems, like the Incan empire, required taxation as a form of social insurance, which back then simply meant providing the resources to build roads and storehouses. And people were generally happy to accept Incan control because they provided empire-wide infrastructure and insurance against famine: everyone benefitted.

So the only real examples we have of taxless systems are via resource rich economies, anarcho-capitalism exists in a realm of fantasy for now. Either your nation needs to sell something which is in high demand and rarely occurring... or you need to be more creative in your approach, bearing in mind obvious problems that occur from a lack of taxation/government services.

On the other hand if the people can afford to provide for themselves (there's enough land for everyone to grow their own food, make their own house, and enough children to provide care for them as elderly, etc) then taxation could be low or public services inexpensive; to provide an Incan insurance, let's call it, of storehouses and infrastructure.

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This was part of the theme of Neal Stephenson's Snow Crash: privatisation taken to its illogical conclusion, with the government fragmented into various private contractors. For example, early on in the novel one of the characters is arrested by a private security firm and given the choice of which jail to pay to be taken to.

One problem you'll have to address almost immediately if you want to do without all taxation is private authorities deciding to impose their own kinds of tax, such as protection rackets or road "checkpoints". This is quite a problem in some of the wilder parts of the world even where there is a nominal tax-imposing government.

You could potentially operate a government by making it the sole landowner and charging rent. This looks exactly like a land tax but is labelled "rent" instead. In some ways the old feudal duty system worked like this.

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Public subscription, basically a "Go Fund Me" by the government, the government produces a list of projects, and individuals donate time, money and resources to the project/s of their choice.

This was sort of how the governments of the Classical Greece was meant to ideally work, the two examples I can remember off hand are an olive oil trader who funded a war fleet, and the prostitute Phryne who offered to rebuild the city walls of Thebes. The motivation being that a public display of civic virtue earns the giver the respect of the community.

More recent examples, the cruiser Georgios Averof was brought for the Hellenic Navy in part with funds from the business man who gave her her name. Prior to WWII the people of Poland paid for by public subscription the costs of building submarines and destroyers. Fitting in directly with your scenario, is the British WWII Spitfire Fund, http://www.bbc.co.uk/news/uk-england-35697546, in which individuals, groups and communities contributed to buy fighters for the RAF.

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  • $\begingroup$ that is also how the articles of confederation functions, and why the government of said system was completely useless. $\endgroup$ – John Jan 9 '18 at 0:02
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It could work without personal income taxes. Several USA states have no income tax.

Usage fees, tariffs, interest on money distributed by the government.

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I suppose it might be possible to build a society where there are no taxes because there is no money. There is no money because there is no shortage of any resource. Anyone can have anything they want (built by replicator, 3-D printer, or nanobots). Work and basic services are performed by bored people, robots, computer intelligence, or some other kind of technological sorcery. Important decisions are decided based on the result of surveymonkey surveys or by rolling dice.

These ideas are kind of silly but the point is that the need for taxes depends on an assumption that there are limited resources. If the services provided by government effectively have no cost then all that is really required for a government to function is the consent of the masses.

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If the country has huge incomes after some particular activity (mining and selling oil for Gulf-like countries, casinos for Monaco-like countries, religion for Vatican-like countries) it can easily avoid collecting taxes from its citizens.

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No Tax does not need to mean no goverment income. Spain of 16th Century was very rich by pressing the Gold from America, so rich that for 100 Years most Spanish did not work. Today many oil-rich Countries can gave low taxes because of the income. So if you only want no taxes, an other source of income for the Goverment is needed, because anyone who works for the Country wants to get paid.

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Collect donations on volunteer basis. If you people want this road to be built, donate for this cause. This will also be a higher form of democracy, if you don't want that road, simply don't pay. Government officials could also be volunteers helping out the country. Requires well educated and well mannered citizens to work properly.

This system could exist, but be warned, it will be fragile. An economic recession may mean the collapse of the entire system, leading to anarchy as there is no designated body of authority.

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  • $\begingroup$ That's what a modern representative democracy is supposed to be. The state proposes projects, the public, through people's representatives, decides whether it wants to pay for them. Pity the other requirement isn't met. $\endgroup$ – nzaman Jan 7 '17 at 14:34
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    $\begingroup$ "This will also be a higher form of democracy, if you don't want that road, simply don't pay." And who's going to ensure that you won't use the road you decided not to pay for? $\endgroup$ – Keith Morrison Jan 8 '18 at 6:39
  • $\begingroup$ No need to ensure that, in fact, that person will also have access to that resource once constructed. Some people will be freeloaders for a while, but once the system is integrated with the society, most people will see that their participation is required and act on that. $\endgroup$ – Cem Kalyoncu Jan 9 '18 at 7:26
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It can be done if you have government control of a critical resource that other people are willing to pay for combined with a relatively small population so that it's not hugely expensive to provide services to that population. Saudi Arabia is a prime example with petroleum, but you could imagine other examples, such as a small country that has control over a transshipment point and charges user fees for access to its ports and warehouses, or a banking industry used worldwide that takes a cut, or whatever.

There are two main issues with that sort of thing, however. The first is what happens if you lose that resource, either because it's used up, because people don't want it any more, or cheaper/better alternatives are found? For instance, suppose that in the 1970s someone had invented cheap, affordable, fusion power and power cells that could be used in vehicles. Saudi Arabia and the other Gulf states would have been utterly hosed and desperate to find any other kind of economic base to function.

The second problem is population. Again using Saudi Arabia as an example, it's had to shift what would be considered essential government services (such as supplying water, sort of a necessity in a desert country) to private industry because its growing population meant it couldn't continue to fund it from a stagnating oil revenues.

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One way is a pay-per-vote system. Basically, no one is forced to pay, but then the government isn't going to listen to them, obviously. Some people might be fine with this, but most people won't. It does mean though that people get to pick their price, with the more they pay, the more representation they get.

In particular, I imagine some sort of sophisticated legal auction being set up in this kind of society. For example there would be a "determine where the power plant is build" auction, and a "decide who is allowed to commit violent crimes for the next 6 months" auction.

(This will probably be a dystopia, btw.)

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Yes, but it will be a very small government.

The funding mechanism is the printing press (more metaphorically than an actual press, though.) Now, normally this leads to economic catastrophe but it doesn't have to. The thing is, as the economy grows it actually needs money being infused into it just to keep things on an even keel.

So long as the government keeps it's use of the printing press down to level needed to supply that cash there's no problem, let alone catastrophe. Instead of having the Federal Reserve create the money we need the government would do so directly and use that as it's source of funding. Note that this means a government something around 1% of the size of the current US government.

(And keeping the politicians from turning up the presses is going to be a major problem with such a system!)

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A sort of extreme-capitalist/extreme-socialist system might do it. The government doesn't impose taxes, but it does control some large businesses which provide essential services & products at a price. It may even have a monopoly on some of them. This is where the income comes from.

So not so much (or at least not just) paying per service (paying the fireman to save your house), more like the government still pays for them, but using profits it earned from selling food from government-owned farms.

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Some states seize control of natural resources (like oil) that no one really owns and sell these for funding. This happens in some Middle Eastern countries that can't tax much because of low GDP per capita.

Another supplement to revenue is lotteries. These can make a few billion dollars in profit.

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    $\begingroup$ A few billion dollars is a rounding error in the budget of a country the size of the US. $\endgroup$ – sphennings Jan 8 '18 at 16:57
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    $\begingroup$ @sphennings ...and by the time you get down to a small enough country that a few billion dollars make a significant difference in the state budget, the likelihood that you have enough of a citizenry to support that few-billion-dollars-profit lottery are... shall we say slim? $\endgroup$ – a CVn Jan 8 '18 at 19:15

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