The Contribution of Luigi Einaudi to Public Finance

This paper illustrates the main contributions of Luigi Einaudi (1874-1961) to the field of public finance – the definition of the personal income tax base within the theory of optimal taxation and the architecture of economic legislation in the liberal state – and discusses their relevance today. The public policy recommendations that descend from Einaudi’s voluminous research in this area include: personal taxation based on normal or ordinary income to approximate the ideal consumption tax base, avoid the double taxation of savings, and generate the correct incentives to invest and produce new capital goods to the benefit of the creation of a progressive society; contrast to monopolistic power and any form of artificial limitation of free competition; reduction of excessive interpersonal inequalities (lowering the peaks) to avoid the risk of tyranny; the pursuit of social justice while preserving incentives to market participants; finally, the reduction of inequality in starting points through public provision of education to the benefit of the younger generations and to society at large. Despite the enormous transformations that the world economies have experienced since his death, Einaudi’s writings turn out to be almost prophetic of the main contemporary challenges of economic and fiscal policymaking.