The Lost Road: Fiscal Contract and Fiscal Theory in Historical Perspective

Paolo Liberati and Massimo Paradiso ()
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Massimo Paradiso: University of Bari, Department of Economics and Finance

Chapter Chapter 2 in Rebuilding Fiscal Democracy, 2025, pp 7-42 from Springer

Abstract: Abstract The history of the relationship between fiscal theory and the social contract marks a lost path in the construction of a fiscal democracy grounded in a fiscal contract. This chapter traces the historical trajectory through which the invisible hand of the market has gradually prevailed over the visible hand of democracy—from Rousseau to Adam Smith’s critique of state intervention to Jeremy Bentham’s staunch rejection of the social contract, with this shift accelerating from the late nineteenth century up to the emergence of market democracy. This evolution reflects a deeper conflict: the clash between competing visions of the fiscal role of the state and of the public budget in addressing fundamental dilemmas of social justice, paralleling the contrast between the ability-to-pay principle and the benefit principle of taxation. The benefit theory of taxation, historically overshadowed by the ability-to-pay principle, represents the lost path toward the idea of a fiscal contract.

Keywords: Social contract; Fiscal contract; Cooperative democracy; Ability-to-pay principle; Benefit principle (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-032-04859-2_2

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DOI: 10.1007/978-3-032-04859-2_2

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