Taxes, Democracy, and Statehood. A Case Study on the Transformation of Italy’s Tax Regime

Research groups - Democracy and statehood
Start of project: May 2016

Italy, the largest advanced economy in southern Europe, has been plagued by what is obviously an economic and financial crisis that began before 2008. Among its symptoms are minimal or at times even negative economic growth, low employment rates, high unemployment (especially among young people), and finally a national debt of about 135 percent of GDP (in 2016), which in an EU comparison is surpassed only by Greece’s debt. Italy’s national debt in particular poses a serious problem for the European economic community and the eurozone. For Europe, Italy is “too big to fail”, which is why European efforts to consolidate focus on strategies to reduce the country’s deficit. But tax increases do not appear to be the method of choice for this purpose—despite a high nominal tax rate for employees and companies, tax revenue in Italy is surprisingly low. The reason is massive tax evasion, the evasione fiscale. There are estimates that, in 2014 alone, about 130 billion US dollars in tax revenue eluded Italy’s tax authorities. Numerous international organizations are therefore primarily urging the Italian government to consolidate the tax system in order to reduce state deficit.

But it is not clear whether a restoration of the Italian state can succeed with the measures taken so far by its executive apparatus. Although public pronouncements by the government emphasize despotic instruments of power—ranging from company audits to tax inspectors’ visits to luxury beach resorts—implemented especially by the Guardia di Finanza, the resistance of Italy’s population to its government’s efforts to extract money, which has been vividly described in literature, suggests that such undertakings will merely expose the powerlessness of the state. Whether the Italian state can prove its—recently adopted—capability to act not only to the rest of the European Union but also to the world at large will essentially depend on its success in collecting taxes from highly diverse groups.

This research project aims to develop a convincing interpretation of this conflict between state erosion and restoration. To this end, the concept of infrastructural power and its actual implementation must be addressed. Infrastructural power theoretically describes the prerequisites for efficient and comprehensive tax collection. From a historical perspective, it appears when despotically installed modes of domination are consolidated and state domination becomes internal rather than external. Tribute is no longer collected; rather, it is regularly realized as domestic tax. Despite some setbacks in recent times, countries in northern Europe have successfully gone through this transformation. In the south, especially in Italy, the transformation has been only partially successful, and despotic tax controls continue to have priority over taxation based on self-assessment. But the state cannot guarantee sustainable and comprehensive taxation in this way because it depends on the collaboration of its citizens. Two questions arise from these observations. Firstly, why did this state infrastructure not become established in Italian society? Secondly, will recent approaches initiated by the state remedy this situation?

To address these contexts, the project will examine the specific history of conflict in Italy’s tax state, its democratization, and associated capitalist modes of production. The anti-fascist constitution of the First Republic (from 1946 onward) created the foundations of a progressive tax regime within the political system. Since then, Italian finance politicians, inspired by measures aimed at promoting European integration, have made several attempts to modernize the state apparatus and tax laws in particular, and to resolve structural problems. They introduced income tax returns for all, prohibited the practice of private tax collecting, and installed automatic cash registers to issue the famous scontrini [receipts]. At the same time, they implemented extensive reinterpretations of progressivity principles in tax law. However, all these efforts always met with massive resistance from various actors, which often led to a modification of tax legislation; actual implementation on the administrative level was impeded by corruption or parastatal double taxation. These factors, as well as tax loopholes and amnesties, meant that, despite numerous attempts at modernization, rationalization of the tax state was neither comprehensive nor complete. The outcome and development of this transformation process are central to the future development of Italy and are therefore the focus of the research project.

In order to understand the mechanisms and processes that allow the state to simultaneously expand and impede its taxation capacity will be deciphered in the context of social theory and linked to a historical reconstruction. The shadow economy, tax evasion, and tax fraud are three dimensions for analyzing democratic resilience. On the level of administrations, corruption and control techniques highlight useful approaches. Tax policies and their implementation (as of 1946) will be reconstructed and decoded in parallel processes.

In terms of practical research, the fiscal-sociological historiography to be developed in this project will involve three steps. Firstly, historical approaches to the economization of the tax state will be described, based on archival research. Secondly, this will be supplemented by reconstructing and condensing Italian and foreign-language research literature, because to date no general overview has been published in this field. Thirdly, interviews with experts on recent developments and on processes of interest from the perspective of the sociology of administrations and of organizations are expected to yield information that can be used to analyze and evaluate these processes.

The objective of this theoretically guided empirical analysis is to describe why the mechanisms of tax collection are so porous in Italy in contrast to other European states. Furthermore, the project is meant to provide insights into the nature of southern European statehood that will facilitate assessment of the status of democracy in times of a growing "functional dedifferentiation" of finances and the state (Vogl).