Tax systems and tax reforms in Europe: Rationale and open issue for more radical reforms



the average European baseline levels. The same amount of shift but from labor to consump-
tion taxes should increase employment by 0.6 and GDP by 0.7 points (Leibfritz
et al. 1997).22

(iii) Political feasibility - Profeta (2003) introduces more than one caveat concerning the
political feasibility of a the tax shift by an amount of about six point of GDP. This is probably
still more true if the shift almost entirely goers from dependent workers to all the consumers
(and producers). Some parts of the workers’ contributions to their PAYG pension schemes is
charged on other tax-payers-voters In my mind just one way can make this politically feasi-
ble. It could be done by charging on general taxes the financing of an universal social security
safety net, that must include also minimum pensions, whose share on the total treatments can
thus be subtracted from the funding through workers’ social contributions.

3.2. Looking for strengthening fiscal and social fairness

From its very beginning, the “old” Welfare economics (obviously: Pigou 1929) clearly stated
that the level of social welfare is given not just by the amount but also by the even distribution
of the social “dividend” (= GDP), due to the principle of decreasing marginal utility. Thus it
seems worthwhile to look for an increase in fiscal and social fairness to sustain the welfare
and compensate the current decrease of the growth rate. Something like a Rawlsian society
(Rawls 2001) is outlined in the background, i.e. the well ordered society of equal opportuni-
ties, highly endowed with freedom and social justice, particularly for the less advantaged.
How to link tax reforms to fiscal and social fairness? The main way obviously requires to im-
prove tax equity, some other features of tax systems are involved, having however well in
mind that some final and maybe far more important traits of social fairness have little to do
with fiscal systems. Looking of course only at these latter, here I limit myself to briefly specu-
lating on three main points, and just in an intuitive way.

(i) Political process and fiscal exchange - Rawls (still 2001) stated some normative
conditions, which can allow the political process to generate fair social outcomes. These

22 The two sets of results may seem asymmetric, but one must take account of the non- linearities and the substi-
tution effects embodied in the model.

14



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