Searching for fairness in taxation. Lessons from the Italian school of public finance

This chapter focuses examines how a trust contract between the taxpayers and the fisc can be established also in representative democracies, and how just taxation can contribute to this purpose. The analysis draws suggestions from the contributions of the Italian school of public finance, which, due to the influence of A. De Viti de Marco and L. Einaudi, elaborated at length on the individual’s terms of trade with the government. According to the Italian public finance tradition, which was critical of both the benefit and the ability-to-pay approaches to tax sharing, the exchange relationship between the individual and the State cannot be specified as a strict quid pro quo, rather it requires reference to the interest of the individual in the State’s activities. A. Smith’s original principle of interest was thus resumed, first by F. Ferrara and then by A. De Viti de Marco and L. Einaudi, and it was embedded in the Italian public finance thought. The principle of interest found its most interesting and extreme applications during the post-war constitutional phase and the subsequent tax reform (1945-1951). E. Vanoni and L.V. Berliri developed it to identify solutions to the issue of fairness in taxation. Berliri’s contribution is probably the last attempt to scientifically design a pure fair tax to finance non-redistributive expenditures, while Vanoni employed an extended definition of interest to rebuild the relation between taxpayers and the fisc in a context of redistribution. Berliri and Vanoni’s contributions are essentially normative and provide little in the way of operational propositions: the generality of their construction is however compensated by their suggestions for re-examining fiscal relationships. The chapter shows how the contributions by Vanoni and Berliri add support to the argument that the fight against tax evasion would require a range of instruments in terms of tax policy in addition to the traditional coercive ones. In the light of the current serious problems of tax compliance, particularly in Italy, the cycles of antagonism between the Tax administration and the taxpayers must be broken by the offer of mutual trust contracts from the government and by consolidating a correct concept of taxation, as the expression of the moral and civil duty, that concerns each of us, to contribute to the good of society. This perspective should be seriously considered by policymakers because establishing conditions of fairness in the relationship among taxpayers and between taxpayers and the government, may be a more effective instrument against tax evasion than the simple increase of coercive policies.