quinta-feira, 26 de fevereiro de 2015

"Theory of Financial Illusion" - Amilcare Puviani

"Teoria della illusione finanziaria"
"Die Illusionen in der öffentlichen Finanzwirtschaft"

Seminal work (and Italian book) about Public Finances that, unfortunately, is not easy to locate - and has never been translated to English. The only alternative is the German version, published in 1960.

Some interesting opinions about the author's thoughts ideas and thesis included in the book and about the subject:

 "In 1903, Amilcare Puviani, one of the great personalities of the Italian public finances, published his seminal work Teoria della ilusione finanziaria (Theory of Financial Illusion), which grounded – as mentioned by the title – he theory of fiscal illusion, which later on was adopted and developed by the so-called "Public Choice School". Mentionable in this case is the fact that the Italian theorist introduced the theme of "fiscal illusion" within the larger picture of "political illusion". From the very beginning, we notice that, at the turn of the 20th century, the humankind acknowledged the irrefragable connection between political and economical factors. Moreover, the economical illusion proves to be a component of the political illusion.
Coming back to Puviani's theory, let us summarise its main lines by drawing a standard portrait of the taxpayer.
   a) He ignores the types of pays allowed by the public budget;
   b) He does not know the way public expenditure is made;
   c) He ignores the public expenditure quantum and does not check pay dues;
   d) He ignores the timetable of money allotment, be it for a short or for a long term;
   e) He is not aware of the moment when the allotment of public money ceases;
   f) He ignores the goal set by the State when public expenditure is projected and executed;
   g) He ignores the immediate effects of public expenditure;
   h) He ignores the motivation brought in for public expenditure.

Since the second half of the past century, the theoretical minds who framed the thesis of "public choice" have approached the relationship between public debt and the welfare state in terms of fiscal illusion. In point of fact, the governs indebt themselves and spend money easily, almost carelessly, on social assistance. This way, the citizens – also, the virtual voters – are supplied with a makeshift and transitory welfare; on a long - term basis, the public debts appease society and, instead of increasing, they backlash the general welfare."

"Fiscal illusion stems from the study of Amilcare Puviani "Financial theory of illusion"1 (1903) and it is defined as the phenomenon that generates a feeling of easing the tax burden and an increase in social benefits, especially possible in those contexts in which the revenue of the State and the financing of public services are not fully known or controlled by the taxpayer.
Fiscal illusion occurs to leading taxpayers due to the mistaken perception of living in a context where there was a reduction in the overall level of taxation or even an increase in expenditure on public goods provided without any increase in taxation. Fiscal illusion becomes evident in those contexts in which an increase in provided public services is unperceived by economic agents. They do not get the perception that this increase in services is not made up during the same period of taxation, but rather through the use of public deficit. This implies a simple shift of the increase in taxation to future years, or of an increase in the supply of money, that generates inflationary pressures. Such pressures will cause increases in fiscal pressure and tax revenues, but only in future years.
1 The theory of “financial illusion” argued that, through the management of public finance, public rulers were used to allocate a substantial part of public financial resources to the ruling class, without the working classes knowing. Therefore, the latter were mislead by tactics and deception to come to incorrect assessments of the aims of policy choices, for example by letting them perceive a reduction in taxes while these increased."

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