what are the downsides of voluntary taxation (https://en.wikipedia.org/wiki/Voluntary_taxation)? what would happen to a polity that used it as the sole form of capital allocation?

In theory forced tax action is voluntary - you elect for and against it. Perhaps representative democracy is a bug post blockchain. 

Would great to run an on-chain experiment like the one cited in the wiki.

Reinventing illiquid assets.

Starting with venture @ www.withgrove.com 

in theory, yes. in practice, no. trying to imagine what the possible negative externalities might be with a system like this. (we're currently working on a white paper that lays the mathematical foundation for the on-chain experiment)

I’m interested to read this draft and contribute if I can. 

How I’m looking at this: blockchain solves for the error of direct democracy that’s being solved today by representative democracy (inefficiently).