Vilfredo pareto and contemporary economics: Social equilibrium, fiscal decentralisation and economic growth

During the second decade of the twentieth century, Vilfredo Pareto’s influence on the fiscal scholarship of Guido Sensini, Gino Borgatta and others in Italy was significant. In the 1920s a unique approach to fiscal thought developed which was grounded in the Paretian notion of social equilibrium. This study highlights the main features of this approach and considers why it went into decline from the 1930s and terminated in the 1950s. The paper also points to a potential benefit from integrating Aldo Scotto’s pioneering work on fiscal decentralisation with the Paretian fiscal thought of Sensini and Borgatta as part of a modern research program on the relationship between fiscal decentralisation and economic growth. (JEL:A12, B31, H00)     

Schumpeter's crisis of the tax state: An essay in fiscal sociology

Schumpeter'sCrisis of the Tax State and other fiscal writings are summarized. His crisis theory and its relation to his prognosis of capitalist decline is explored, along with Goldscheid's earlier model. Both are found to have underestimated the resilience of the tax state and its ability to sustain expanding budgets. Schumpeter's view of the income tax as appropriate for a minimal state is assessed along with subsequent tax development. His fiscal model is placed in the context of his understanding of sociology as a social science. Some conjectures on his response to the subsequent course of fiscal sociology are added.The Editors invitation to revisit the Crisis of the Tax State coincided with my intent to review Schumpeter's recently publishedEssays in Economic Policy, 1991, C. Seidl and W. Stolper, eds., Princeton University Press. Spanning Schumpeter's economic and fiscal writings for three decades, this volume provides a rich addition to his initial vision, so that these pages may serve both tasks.     

Francesco Forte’s Contributions to <Emphasis Type="Italic">Essentials of Fiscal Sociology</Emphasis>

Francesco Forte has made major contributions to many areas of economics with the result that his theoretical work and applications have opened new areas of inquiry. This paper connects Forte’s work with the work of Jürgen Backhaus on fiscal sociology. Positioned at the crossroads of economics and sociology, the answers to these questions helped fill the void which gave rise to the field of fiscal sociology. Fiscal sociology is primarily a study of taxation and fiscal policies which illuminates core issues in the sociology of contemporary capitalism. It includes the causes of poverty and inequality in rich countries and adds to our understanding the basis for the inequality between rich and poor countries. Our paper reviews several of Forte’s papers on Pareto’s fiscal sociology and the failure of European planning for less-developed regions. The paper highlights Forte’s contributions to economic theory focusing on Pareto’s sociological theory and the influence of the European Union on regional development.     

How to reform China’s fiscal system?

ABSTRACT

As the population aging, China’s government expenditures, including general fiscal expenditure, healthcare and social security expenditure, will grow more rapidly than government revenues, tending to elevate government debt. Local governments undertake overwhelming 85% of total general fiscal revenue and are responsible for healthcare and social security, and their debt has been growing. Fiscal reforms are imperative, including tax reforms, the structure of government spending reforms, social security reforms, healthcare reforms, local public finance reforms, and central and local government’s fiscal relationship reforms. This paper will explore the fiscal challenges China faces and discuss how to reform the fiscal system to cope with these challenges.     

The fiscal sociology of Gino Borgatta: Pareto, extra-economic redistribution and economic growth

The purpose of this study is to establish the extent to whichBorgatta's early fiscal sociology is consistent with, and differentfrom, Vilfredo Pareto's critical views on fiscal theory. Particularemphasis is given to the treatment of the relationship between‘extra-economic’ redistribution, achieved throughfiscal measures, and economic growth. Since evidence of Pareto'sinfluence is much weaker in Borgatta's more mature studies,the ‘definitive’ Paretian fiscal sociology thatemerged in his early ‘Lo Studio Scientifico dei FenomeniFinanziari’ is investigated for possible indications ofwhy Borgatta did not subsequently develop fiscal studies furtheralong Paretian lines.     

A Modern Money Perspective on Financial Crowding-out

Abstract

The withdrawal of discretionary fiscal stimulus and a renewed emphasis on institutional and ‘self-imposed’ budgetary constraints are evidence that the imperative of fiscal sustainability and sound accounting fundamentals continue to drive fiscal policymaking within many advanced economies. To buttress the urgency for fiscal sustainability, neo-liberals often draw upon financial crowding-out theory. Despite an extensive literature, empirical applications are often misspecified due to their failure to account for different institutional arrangements. However, the policy responses of national governments to the Global Financial Crisis have highlighted the institutional disparities, presenting a unique opportunity for a rigorous empirical investigation. This paper develops panel vector error correction models for both sovereign and non-sovereign economies over the period 1999 to 2010 to examine financial crowding-out. The empirical evidence reveals crowding-out effects in non-sovereign economies, but not within sovereign economies.     

Helicopter Ben,Monetarism, The New Keynesian Credit View and Loanable Funds

Abstract:

The purpose of this article is to examine the intellectual roots of monetary dominance over fiscal policy. A first step was Milton Friedman’s reinterpretation of the Great Depression based on the money-multiplier story associated with the fractional-reserve system. In the 1990s New Keynesian authors and Ben Bernanke in particular never got away from Friedman’s interpretation and remained faithful to the loanable funds theory despite their new focus on bank credit and their apparent abandonment of monetarism. New Consensus Macroeconomics kept arguing that expansionary fiscal policy could only lead to higher inflation rates and real interest rates that lowered potential output. The New Keynesian literature on the zero lower bound of the early 2000s thus mostly overlooked the benefits of expansionary fiscal policy; instead, the optimism on unconventional monetary policies failed to prepare policymakers for the Global Financial Crisis. The crisis demands far-reaching changes to monetary and macro theory not least of which is a recognition that the theory of loanable funds is incapable of providing any insight into how the financial system works in practice.     

‘Marxism Gone Mad’: Tugan-Baranovsky on crises,their possibility and their periodicity

Abstract

Tugan-Baranovsky's theory of crises has two components: a theory of markets, defining the condition under which expanded reproduction can take place, and a theory of crises proper, explaining how any rupture of equilibrium is amplified and extended to the whole system and gives rise to periodical fluctuations. The former, based on the Marxian schemes of reproduction, is logically preliminary to the latter, which relies on the accumulation and depletion of loanable funds. In spite of Tugan's insistence on this nexus, academic commentators have ignored Tugan's theory of markets, while Marxist critics have focused exclusively on this aspect and charged Tugan with upholding Say's Law. While this reading is not entirely justified, there is indeed a deep difference between Tugan's and Marx's interpretation of crises. While Marx considers crises as the necessary corrective to the systematic and necessary breaches of equilibrium, Tugan sees equilibrium as the norm and crises a deviation from it, albeit recurring and periodical.     

The Emergence of Money in Commodity Exchange,or Money as Monopolist of the Ability to Buy

Abstract

Money's emergence in commodity exchange remains an unresolved issue within economic theory. Current general equilibrium models offer an explanation that rests on the economic advantages of a universally accepted means of exchange that is partly established through social custom. These models neither fully explain money's unique ability to buy, nor theorise the customary practices required for money's emergence. They are dominated by Menger's earlier analysis of money's emergence, which pays more attention to the social foundations of money but is still hampered by Austrian individualism. An alternative explanation is given here, drawing on Marx's theory of value but involving a thorough reworking of it. An analytical process is established through which money finally emerges as monopolist of the ability to buy. Particular social custom, whose determinants are consistent with the social underpinnings of commodity exchange, plays a vital role in money's emergence.     

Thinking of Sylos Labini (or Sylos Labini's Thinking)

Abstract

This note reflects upon the methodological principles that Paolo Sylos Labini (1920–2005) brought to his work as a political economist. Sylos Labini drew upon history, political science, sociology and philosophy in order to explain economic processes, and he insisted that an interdisciplinary approach was essential to formulating effective policy responses to modern social problems.     

The Golden Age of Tax Expenditures: Fiscal Welfare and Inequality in Portugal (1989–2011)

ABSTRACT

This paper studies social tax expenditures as an instrument of social policy, considering its broader social and political ramifications, particularly regressive distributive impacts, the targeting of social protection and making markets for non-state providers. Using OECD data and government budgets, we look at ‘tax breaks for social purposes’ in Portugal since the 1980s, with a focus on healthcare, educational and mortgage loan expenses. Portugal presents a comparatively high level of TBSP before the Great Recession. Why? Using Portugal as a theory-developing case, the paper argues that in the critical juncture following the late, double transition to democracy and structural economic reform, tax and welfare state developments combined to create social tax expenditures as a modality of targeted social expenditure favouring middle and higher strata. Once in place, a combination of powerful vested interests, obscure policy-making, regressive income distribution and high take-up rate across taxpaying groups obtained a path-dependent outcome, keeping inegalitarian and costly fiscal welfare growing during adverse fiscal conditions. Such a resilient outcome was curbed only in 2011 by the harsh conditionality of the economic and financial adjustment programme of the Portuguese bailout, an instance of how deep crises provide opportunities for path-shifting reconfigurations of social policy.     

Tax morale,fiscal capacity,and war

This paper studies the effects of mobilization for war on the development of fiscal capacity and the values of tax compliance (tax morale). We propose a dynamic setting where governments may invest resources to improve the efficiency of the fiscal apparatus and the citizens' tax morality in order to raise the necessary revenues for the defense against a threat (external or internal), and parents optimally choose to transmit their preferences of tax compliance to children. Despite fiscal capacity and tax morale are initially substitutes, we show how a dynamic complementarity may arise in equilibrium from a more efficient transmission of the values of tax compliance in countries with high fiscal capacity, and this may explain why they tend to move together over time. Under reasonable conditions, we obtain that the effect of a higher threat of war on the steady-state level of the culture of tax compliance is negative when fiscal capacity is relatively low, and positive when the latter is large. We show cross-country evidence based on war frequency, fiscal capacity, and tax morale that is consistent with the results of our theory.     

Max Weber's critical response to theoretical economics

Abstract

Max Weber's work currently forms the centre of a strategy to rebuild heterodox thought around economic sociology. The instrumentalisation of Weber is based on a lack of understanding of his response to economic theory. This article seeks to fill this gap. It will show that Weber extended Menger's work by correcting its naturalism and that his critical response rests on a Kantian approach, as explained below. It appears that a pure non-Walrasian theory is therefore possible and that the heterodox reclaiming of Weber is based on a misinterpretation of his work.     

Modeling the fiscal costs and benefits of alternative treatment strategies in the United Kingdom for chronic hepatitis C

Background: Hepatitis C (HCV) infection causes substantial direct health costs, but also impacts broader societal and governmental costs, such as tax revenue and social protection benefits. This study investigated the broader fiscal costs and benefits of curative interventions for chronic Hepatitis C (CHC) that allow individuals to avoid long-term HCV attributed health conditions.

Methods: A prospective cohort model, assessing the long-term fiscal consequences of policy decisions, was developed for HCV infected individuals, following the generational accounting analytic framework that combines age-specific lifetime gross taxes paid and governmental transfers received (i.e. healthcare and social support costs). The analysis assessed the burden of a theoretical cohort of untreated HCV infected patients with the alternative of treating these patients with a highly efficacious curative intervention (ledipasvir/sofosbuvir [LDV/SOF]). It also compared treating patients at all fibrosis stages (Stages F0–F4) compared to late treatment (Stage F4).

Results: Based on projected lifetime work activity and taxes paid, the treated cohort paid an additional £5,900 per patient compared to the untreated cohort. Lifetime government disability costs of £97,555 and £125,359 per patient for treated cohort vs no treatment cohort were estimated, respectively. Lifetime direct healthcare costs in the treated cohort were £32,235, compared to non-treated cohort of £26,424, with an incremental healthcare costs increase of £5,901 per patient. The benefit cost ratio (BCR) of total government benefits and savings relative to government treatment costs (including LDV/SOF) ranged from 1.8–5.6. Treating patients early resulted in 77% less disability costs, 43% lower healthcare costs, and 33% higher tax revenue.

Conclusion: The ability to cure Hepatitis C offers considerable fiscal benefits beyond direct medical costs and savings attributed to reduced disability costs, public allowances, and improved tax revenue. Changes in parameters, such as productivity, wage growth, and tax rates, can influence the conclusions described here.     

An Assessment of Fiscal Sustainability in Romania

This article analyses Romanian fiscal policy during the 1990s with the main emphasis on the aspect of sustainability of the budget situation. First, the study presents the general development of Romania's economy during the transition period as background for the subsequent policy analysis. Second, the problems of quasi-fiscal subsidies and payment arrears which led to very large quasi-fiscal deficits are highlighted. In the next step, a macroeconomic model is introduced to assess the degree of fiscal sustainability starting with the inter-temporal government budget constraint. The overall deficit for the general government, including central and local governments as well as other institutions belonging to the non-financial public sector, is computed using official statistics. The research findings suggest that Romania has followed an unsustainable fiscal policy in the transition period, particularly up to 1996. In the first half of the 1990s the government financed the deficit partly through seignorage and tried to deal with immediate pressures, preventing social dissatisfaction but neglecting long-term targets. The situation has improved slightly in recent years, nevertheless, there is still much to be done in this area.     

The liberalization of trade and foreign direct investment: a political economy analysis

Abstract

In theory, the IMF could influence fiscal and monetary policy via several channels, among them advice to policy makers, conditionality, and the moral hazard it induces with the borrowers. This article tries to disentangle those effects empirically. Using panel data for 98 countries over the period 1975–2000 it analyzes whether IMF involvement indeed influences fiscal and monetary policy in program countries. There is evidence that participation in IMF Standby and Extended Fund Facility arrangements improves economic policy. Money disbursed and the degree to which a program is implemented does not have any systematic influence. The same is true for future availability of resources as measured by exhaustion of a country’s quota with the Fund. The final section discusses policy implications.     

THE GREAT RECESSION, “RAINY DAY” FUNDS,AND COUNTERCYCLICAL FISCAL POLICY IN LATIN AMERICA

We examine the fiscal policy options that were available to Latin American countries at the onset of the current global economic crisis, concluding that most of the major countries in the region possessed the fiscal space (as measured by credible fiscal sustainability and debt headroom) to run prudent countercyclical fiscal deficits. For those countries, the appropriate policy response involved a constrained fiscal expansion focused on productive public spending and financed by drawing on the “rainy day” funds—in the form of large stocks of foreign exchange reserves—that they accumulated in prior years, rather than by market borrowing. (JEL E62, E63, F34)     

African Women: A Modern History,by Catherine Coquery-Vidrovitch

Abstract

Recently, a considerable amount of research has focused on the evidence of gender differences in corruption. Research conducted on another predatory activity, tax evasion, similarly shows strong differences between women's and men's behaviors. This paper tests this finding in a transition country using a unique data set collected from a field survey of households in Tirana, Albania in 2000. Acknowledging that scholars generally explain gender differences in economic behavior either as biological or by social/psychological role theory, this paper examines a broader range of explanations for gender differences in tax evasion. Taking new institutional theory as a starting point to explain the differences in men's and women's tax behaviors, this paper discusses the relative importance of education, income, age, and number of children, among other factors. Finally, it explores the explanations provided by feminist theory and to what extent these can be integrated into the new institutional theoretical framework.     

Why Economists should Choose their Inheritance: Physics and Path-independence in Economic Systems

Abstract

This paper considers the possibility of using fiscal rather than monetary policy as the instrument of stabilization policy in a new consensus framework. Describing the conduct of fiscal policy in terms of a ‘pseudo Taylor rule’, it is shown that fiscal policy is as, if not more, effective than monetary policy as a tool for macroeconomic stabilization. The conclusion reached is that the comparative neglect of fiscal policy as an instrument of stabilization policy in new consensus macroeconomics is unwarranted.     

The effects of fiscal consolidations on the composition of government spending

ABSTRACT

In response to increasing debt paths, governments often implement fiscal consolidation programs. This paper studies the impact of these programs on the composition of government spending. System-GMM estimations performed on a sample of 53 developed and emerging countries over 1980–2011 reveal that fiscal consolidations significantly reduce the government investment-to-consumption ratio, i.e. a composition effect. Robust to a wide set of tests, including when using the narrative approach to identify fiscal consolidations, this significantly stronger contraction of government investment with respect to government consumption is at work particularly when debt is high and in the low phase of the economic cycle. Therefore, in such contexts, fiscal consolidations aimed at short-run stabilization may hurt the economy in the long-run through their detrimental effect on public investment, calling for a reflection upon how they could be re-designed to allow avoiding such undesirable consequences.