The Termites of the State

30 October 2019
17:30  - 19:00

Vito Tanzi, Economist, formely State Undersecretary for Economy and Finance in the Italian Government and Director of the Fiscal Affairs Department of IMF

The event will be moderated by the CFS President Prof. Dr. Dr. h.c. mult. Otmar Issing


"The economic role of the State had been generally very limited during the 19th Century. "Stabilization of the economy" and "redistribution of income" had not been among the government's functions. Taxes had been expected to be low and to cover only the most essential expenditures for public goods. Public finance could be a "science". Toward the end of the 19th century, in part due to the impact of the Industrial Revolution and pressures from socialist thinking, the role of the state started changing and growing and to contemplate some income redistribution or protection, as with the Bismarck's reforms, and later to contemplate a countercyclical Keynesian role.

The next stage were the decades of the Keynesian Revolution that saw the growth of tax and spending levels, and the creation of welfare states. As the new government role grew, the role of the state  became progressively more generous and  more complex. It will be argued that simpler alternatives would have been possible. The growing complexity facilitated rent seeking and the growth of corruption. It also led to reactions which started  in the decade of the 1970s, with attempts at returning to laissez faire policies. This period witnessed  the rise of "supply side economics" and "market fundamentalism".

It created a "perfect storm". Some past policies were changed and more scope was given to market forces. But the level of public spending and the complexity of policies were not changed but increased. The following decades saw changes that led to growing inequality, to some forms of crony capitalism, to the "Great Recession" and, finally, to the growth of populism."

Vito Tanzi's speech will be based on his 2018 Cambridge University Book, The Termites of the State.

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