Development and Underdevelopment in the History of Economic Thought

Tax erosion in commodity-money systems. Tommaso Campanella on its causes and remedies.

Costabile Lilia, University of Naples Federico II
Velde François R. , Federal Reserve Bank of Chicago

This paper focuses on losses inflicted upon the government by fiscal revenues that do not keep pace with inflation. Well-known episodes of tax erosion occurred in Germany in the early 1920s and in Latin America in the 1970s (Bresciani Turroni,1937 [1931]; Olivera, 1967; Tanzi, 1977). Could something similar to a "Bresciani Turroni-Olivera-Tanzi-effect" occur under commodity money? If so, would tax erosion have exactly the same characteristics, causes and remedies as in paper money systems? Taking the philosopher Tommaso Campanella (1568-1639) as my guide, I study tax erosion and its remedies in commodity money systems. In the first decade of the XVII century, Campanella argued that the government budget in the Kingdom of Naples was deteriorating because of inflation, and suggested remedies intended to halt -and even reverse- the reduction in the real yield of taxes. Campanella's remedies have been mentioned occasionally in the secondary literature, but thus far no attempt has been made to explain the logic of his analysis and recommendations, or to check them against the factual evolution of tax revenues and prices under the monetary and fiscal systems of his time. In this paper I take up these tasks in the following way. In section 2, after a brief description of the Neapolitan fiscal system, I focus on the most important direct tax, the hearth tax, on which Campanella concentrated his attention. More precisely, I illustrate the structure of the tax and present data on its nominal and inflation-adjusted revenue between 1571 and 1605. Section 3 studies the monetary system and the regime of money creation, and discusses Campanella's analysis of inflation against this background. Section 4 illustrates the ratio of Campanella's analysis of the diminution of the real yield of the hearth tax and the remedies that he suggested. To complete my argument, I briefly discuss how his policy recommendations fit into his approach to public policy. Section 5 concludes.

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Keywords: tax erosion; inflation; commodity money; metallic circulation; Kingdom of Naples

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