Litigation as a Technology of Government: The Political Economy of State Conflict Evidence from Tax Litigation in Brazil

This paper argues that litigation operates as a technology of government: a structured mechanism through which states externalize fiscal and political costs while preserving formal legality. Focusing on large-scale tax litigation in Brazil, it shows how judicialized conflict functions as a distributive device that reallocates exposure to fiscal risk across time, institutions, and social groups. The analysis reframes constitutional adjudication not as a corrective to policy failure, but as a central component of contemporary political economy. Drawing on Ronald H. Coase’s framework (The Problem of Social Cost, 1960) and the theory of extractive institutions developed by Acemoglu and Robinson, the article conceptualizes litigation as an incentive-driven institutional technology through which states transform normative uncertainty into durable sources of revenue, authority, and legitimacy. The argument is developed through tax litigation in Brazil as an empirical and analytical case, where the logic of litigation as extraction becomes particularly transparent. The Brazilian experience reveals a causal chain: (i) hyper-legislation produces structural normative uncertainty; (ii) subsidized state litigation converts uncertainty into a permanent fiscal strategy sustained by procedural privileges and the absence of economic risk; and (iii) performance-based attorney’s fees (honorários de sucumbência) convert judicial success into private income for public legal agents, transforming legal conflict into a revenue-generating mechanism. At the level of institutional effects, the article introduces the concept of the legal externality of state litigation: the systematic transfer to society of the economic and institutional costs of conflict—delay, unpredictability, and depressed private investment—while the State internalizes the benefits in the form of cash flow, deferred liabilities, and the private remuneration of public legal agents. The central claim is straightforward: litigation is not a pathology of governance—it is a policy of the State. As long as legal conflict generates individual and institutional economic returns for public agents, neither legal stability nor judicial rationality will be structurally attainable. Overcoming this model requires a re-engineering of incentive structures rather than cosmetic procedural reforms.