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Mussolini...lessons to be learnt for modern tax compliance policies from the Italian experience

It isn’t often that you encounter a post related to tax with the word “Mussolini” in the headline. Even given that it would be foolish to refuse to consider valuable lessons to be learned from the Italian Mussolini era simply because Mussolini was a despicable tyrant and ultimately led his country to ruin and contribute to the greatest conflagration in human history. He was all those things, but we can draw some valid conclusions about tax compliance from the fact that he mounted two very different policies in a short space of time and the outcome of those two differing policies can teach us which if any is the best approach.

The author, Steinmo, points out that Italian tax policy fell to two different approaches during the Fascist period, and the contrast between the two policies throws up some interesting conclusions. Firstly, from 1922-25 a period of liberal tax reform with a lowering of rates, uniform approach to reform, a simplifying of the tax code. These policies were driven by the belief that a simplified code, a just system to replace the creaking and overly complex Italian tax code pre 1922, would encourage a culture of compliance and lead to increased revenues in the long run because the motivations for non-compliance would have been resolved. Many countries have tried this and it is the “culture of compliance” with minimal enforcement is the aim of the modern state.

This did not work.

By 1925 Italy was spending money on its economic stimulus, draining the marshes, fighting the “Battle for Wheat” and living out a fantasy of Mediterranean hegemony through public works, but the tax lira did not come. The culture of compliance failed, the people didn’t rush to pay out of national pride, the kept their Lira under the bed. So, Mussolini did what tyrants do, he changed tack and found a new enemy in tax evaders. Evaders were “the worst parasites in the nation”. He enlarged the tax compliance agencies and cracked down hard. The problem was that the money still didn’t come, he was squeezing harder but the cash did not flow. The situation remained the same and by now the Italian state had an increased bureaucracy which it could not afford to maintain because on the side of this Mussolini had picked a fight with the Ethiopians, and Italy was suffering League of Nations sanctions as a consequence. So…another volt face…by the mid 1930s the fact he was running out of money meant he had no choice but to take a more liberal approach and reduce the size of the enforcement agencies. Again, the money did not flow.

So what conclusions can we draw from this? There are two possible routes, one which is highly infeasible and one which is detailed, complex but from which real lessons can be drawn. Either:


  • Italians are genetically pre-programmed not to pay taxes. They cannot help it and it did not matter what approach was taken.
  • Something more complex in the history of Italy informs this behaviour.

I prefer (b), if only because I don’t believe any nation of tens of millions is such a stereotype. This article gives a series of reasons why this culture of non-compliance overrode anything that a change in short term policy may achieve.


Primarily, the Italian people did not believe in the Italian state, whoever was running it. Since unification and the Giolitti Liberal government from 1891 until 1921 (the year before Fascism) the Italian state had been used as a giant patronage engine. The Risorgimento had burdened the new country with substantial problems and a limited industrial base concentrated in the north which the central government developed by taxing the South. All with a backdrop of low-level corruption and the confusion of nation building.

Unable to enforce the tax laws properly Giolitti resorted to repeated tax amnesties. This encouraged people to believe if they just held on the debt would be waived. Another cause of distrust, why should I pay when Giorgio next door will have his bill written off in a few years?

In other words, the State was not trusted, couple to that the fact that Mussolini’s style of government was to make announcements and never check that things had been followed through and you have a recipe for utter mistrust. A legacy which still exists today. Italy ranks as the 10th out of 14 western European states in terms of trust by their citizens on scores of corruption, quality and impartiality, marginally outranking Spain.

The conclusion of the author is that this mistrust engendered by the previous 50 years of mismanagement and the three hundred years before that of foreign occupation meaning tax lira were exported to aggrandise foreign monarchs meant that Mussolini’s efforts at tax reform were on the pointless side of ineffective. There was very little he could have done, certainly not whilst leaving much of the State that he inherited intact.

So, what lessons can we learn from this? The fact that Mussolini tried two diametrically opposed policies within years of each other and they both failed shows us that considering this policy in isolation is an error. It is instead a piece of an overall approach. The northern European nations have a higher level of tax compliance and they also have a higher level of trust in the state (though of course, correlation does not equal causation). It is easy to understand that if a citizen trusts the taxman to spend his money wisely and to do good with that tax money then he will struggle less against that same tax man when it comes to his tax return. If the citizen believes that his money will be used to boost pork barrel projects, hand out contracts to political allies and to pay for engorged national debt incurred on vanity projects then it is unlikely he will be so compliant. If that state of affairs lasts decades, then it will take more than a change in tax policy to alter that behaviour.

The conclusion is that there is a compact between citizen and state. The state must be efficient and temperate, and the citizen must comply with taxation. The state must ensure the bureaucracy is as small as possible and the burdens imposed are reasonable, the citizen must be sure that freeloaders are removed and that appointments are meritocratic, that regions do not receive money for voting for a certain party or that radical ideologies are not indulged with taxpayers money. Only then will trust be established and when trust is established tax compliance is naturally strong.

The lesson to be drawn from Mussolini? Be more like Finland

The first, liberal tax reform in the early Fascist period (1922–5), provided preferential tax treatment to productive industries with the misguided expectation that these industries would then comply with existing tax law. After this reform failed, Mussolini shifted from liberal tax policies to an authoritarian model, where he would stigmatize and penalize evaders. www.oxfordscholarship.com/...

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