Italian Fiscal Theorists

It is appropriate that an encyclopedia devoted to libertarianism should have an entry on “Italian Fiscal Theorists.” An essential first step toward an appreciation of and adherence to libertarianism requires that we shed all vestiges of the romantic vision of how politics works. Profound skepticism about politics and politicians is a characteristic feature of the Italian culture, and it is not surprising that this feature has a profound impact on political economy at the intersection between analyses of the market sector (economics) and analyses of the government sector (political science).

The Anglo-​American tradition of economics can properly claim credit for preeminence in developing the economic theory of markets, stemming from its classical roots in the 18th century through its 19th-​century neoclassical and 20th-​century postclassical developments. No comparable claim could possibly be advanced for the theory of politics or government. English-​language scientific discourse over the better part of these centuries was dominated by a mixture of Platonic idealism and naive utilitarianism. Politics was modeled on a continued search for the “good,” whereas little or no attention was paid to politics as it was practiced and as carried on by ordinary persons, whether as putative rulers, willing or unwilling subjects, or as participants in cooperating or conflicting interactions in democratic institutions.

With Machiavelli and Guicciardini as precursors, we could scarcely have expected Italian scholars to remain 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.

Further Readings

Buchanan, James M. “La scienza delle finanze: The Italian Tradition in Fiscal Theory.” Fiscal Theory and Political Economy. James

M. Buchanan, ed. Chapel Hill: University of North Carolina Press, 1960.

Cosciani, Cesare. Principii di Scienza delle Finanze. Turin: Unione Tipografico Beditrice, 1953.

De Viti de Marco, Antonio. First Principles of Public Finance.

E. P. Marget, trans. London: Jonathan Cape, 1936.

Einaudi, Luigi. Opere di Luigi Einaudi: Vol. 1. Saggi sol Risparmio e L’Imposta. Turin: Einaudi, 1958.

Fasiani, Mauro. Principii di Scienza delle Finanze. 2 vols. Turin: G. Giappichelli Editore, 1951.

Ferrara, Francesco. Opera Complete. Vol. 2B5. Rome: Banca Italia, 1955.

Musgrave, Richard A., and Alan T. Peacock. Classics in the Theory of Public Finance. London: Macmillan, 1958.