capitalism

Italian Fiscal Theorists 259
blindfolded to the reality of politics. As the classical economics
of Adam Smith, David Ricardo, and J. S. Mill
entered Italian thought through the intercession of
Francesco Ferrara in the 1850s, we find the origins of a specific
tradition in fiscal theory that extended over most of a
century. That tradition embodied analyses of politics that
were both more comprehensive and more sophisticated
than anything published by English-language scholars
before the mid-20th century. Works in that tradition also
were more “scientific” than their English-language counterparts
in the sense that normative elements were deliberately
excluded.
The contributions of the fiscal theorists in that tradition
are easily summarized. Beyond Ferrara, the important
names here include those of de Viti de Marco, Pantaleoni,
Einaudi, Barone, Puviani, Fasiani, Cosciani, Griziotti, and
Montemartini, a partial listing, with Pareto looming as an
indirect influence in the background.
First and foremost, the Italian tradition incorporated the
elementary recognition that some model or theory of politics
must inform any discourse about taxing and public
spending if that discourse is to have any impact on
prospects for ultimate reform. Analyses of this or that tax in
terms of the economists’ orthodox efficiency criteria are
meaningless until and unless the processes and institutions
through which taxes are levied are specified. Relatedly, and
equally important, one side of the fiscal account cannot be
analyzed separately from the other. Taxes raise revenues
which governments spend, either to finance goods or to
make transfers, and this spending side of the account exerts
effects comparable to those on the taxing side.
Italian scholars examined politics in two parallel models:
that of the monopoly or coercive state and that of the
cooperative or democratic state. The basic treatises of de
Viti de Marco and Fasiani explicitly presented this dual
approach. As the coercive authority of the state is confronted,
the taxpayer necessarily reacts privately within the
limits of the constraints exogenously imposed. At the same
time, however, in any political setting purporting to be
democratic, the individual may sense, at least indirectly, a
role as a potential participant in the collective decision
processes that ultimately determine the allocation of fiscal
constraints.
The contrasting models of state authority may be separately
developed. How would the monopoly state, freed
from the effects of direct feedback from a representative
democracy, behave fiscally? That is the question that
prompted Amilcare Puviani to develop his concept of fiscal
illusion. Such a monopoly state, always aiming at securing
general support from members of the public, would seek to
minimize the felt burden of taxes and maximize the felt
benefits of its outlays. Indirect and hidden taxes would
be preferred over direct and explicit levies. Taxes would,
when possible, be associated with pleasurable events, and
a multiplicity of small levies would be preferred to a consolidated
imposition. Although not imagined by Puviani,
withholding of taxes at source would almost ideally fit his
criteria. Public outlay would be of the “bread and circuses”
variety (“pork” in its modern form). Officials would spend
much time in ribbon-cutting ceremonies. Opportunity costs
would never enter the lexicon of political rhetoric.
It may perhaps seem paradoxical that, at the same time
models of the coercive fiscal authority were treated as central
elements in the Italian tradition, there was widespread
recognition that collectively financed services were classified
as sources of product value. De Viti de Marco reckoned
that the services of the state should be placed alongside
labor, land, and capital as factor inputs in the generation of
valued output. The Italian fiscal theorists seem to have
totally rejected Adam Smith’s relegation of collective services
to the category of the unproductive.
Luigi Einaudi (who became president of the Italian
Republic after World War II) deserves special mention for
his long-time advocacy of a completely general flat-rate
tax on all units of income, without exception. His argument
was straightforward. Each unit of earned income carries
against it a claim by the state for the publicly supplied
productive services that made the income possible. There
is no justification for differentiation or discrimination
among sources or uses of income. Implicit in Einaudi’s
proposal is recognition of the efficiency gains to be
expected from the elimination of rent-seeking efforts to
secure special treatment. Einaudi was foremost among
those who criticized the practice of analyzing taxes independent
of spending, referring to the imposta grandine,
taxes treated as hailstorm damage.
The Italian fiscal theorists were systemic in their
approach to the subject matter at hand, which was separately
placed in university curricula. They were not writing
as Marshallian neoclassical economists who used
shifts in tax constraints to illustrate the basic logic of partial
equilibrium theory. They were motivated to ask, and
did ask the basic questions: What is the state? To what
extent is the state separated from the citizenry? What are
the motivations of those who act as decision makers for
the collectivity? To what degree can collective action be
factored down into participatory roles for individuals
subject to such action?
It should not be surprising that those fiscal theorists
were realists, rather than romantics in their evaluation of
political processes. In the English-language literature, both
academic and public attitudes have, almost literally, spent
the half century after World War II “catching up” with their
Italian peers.
See also Classical Economics; Coercion; Taxation; Welfare State
JB