Conception of an Encyclopedia
Edited By Jürgen G. Backhaus
The Sociological Theory Of Fiscal Illusion And The Laffer Curve. Reflections On An Italian Case S. Fedeli and F. Forte
Abstract The first section of the paper is devoted to the theory of fiscal illusion by Amilcare Puviani and to the several fiscal illusion hindering the rational perception of the Laffer curve. In the second section, we consider the relevance of these fiscal illusions for the Italian two tier regime of labour contracts, introduced in the 1997-2001 period by means of partial liberalization and reduction of the social security contributions and payrolls (SC). The reform had important positive effects both on employment and on SC revenues, although with a time lag as for the Laffer effect. This Laffer effect is overshadowed by fiscal illusion due to the fact that the SC revenue, in spite of the great increase of employment bringing new SC revenue, was lower than in previous periods, due to the persisting difficulties of the labour market. Laffer effects emerged only in comparison with the revenues in the absence of the reform. In this comparison, an increase in employment occurred also for the labour contracts with high SC burden, not liberalized by the reform, likely because of bundling effects. A collateral fiscal illusion diminishing the appreciation of the positive fiscal effects of the reform lies in the fact that the lower SC paid on the new flexible labour contracts originated lower pensions rights. The claim that “because of the reform” part of the workers would get “lower pensions”, however, overlooks the fact that, without the reform, most of the new employment would have not taken place and there...
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