Valeria De Bonis

TAXING CAPITAL INCOME AS PIGOUVIAN CORRECTION: THE ROLE OF DISCOUNTING THE FUTURE

In this work, we find that the zero capital income tax result might not hold, even at the steady state, when the government discount rate differs from the individual one. As intuitive Pigouvian considerations would suggest, capital income should be taxed (subsidized) when the government is less (more) impatient than individuals are. However, a counterintuitive asymmetry emerges as for the steady state since, in the long run, capital income cannot be taxed because of the explosive distortionary effect of positive taxes. The asymmetry is ruled out with a logarithmic utility function because, in this case, the anticipated policy path does not affect current individual choices and thus the cumulative distortionary effect of taxes disappears.

Political Sociological Theories in Italiana Tradition of Public Finance

The political sociological approach is a characteristic of the Italian tradition in public finance. Its basic features are the concept of ‘ruling class’ or elite as the appropriate theoretical tool to understand politics from a scientific viewpoint; the idea of the ruling class as a minority, only more organized and better motivated than others; the interpretation of political decisions as conflict-based, since the rulers and the ruled pursue different, incompatible aims. Its postulates can be traced back to Machiavelli; the influences of historical materialism through authors such as Loria, of political science through Mosca’s work and, more importantly, of sociology through Pareto can explain why this framework has accompanied the birth of public finance as an autonomous science within economics. The attention to the historical development of economic phenomena induced a refusal of the voluntary-exchange theories, considered utopian, in particular for postulating the existence of an economic relationship between the State and the citizens, or, better, the governors and the governed. It would however be a mistake to believe that the political-sociological approach did not develop an economic analysis of public financial phenomena. It instead contributed, together with the voluntary-exchange approach, to the purification of public finance through marginalism and to the development of a general equilibrium and dynamic approach that characterize the Italian tradition in public finance.