Taxation and Public Finance

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Taxation and Public Finance

Financing the activities of the state was the greatest challenge faced by Renaissance rulers. Increasing costs, especially those associated with warfare, forced rulers to find new ways to raise money from their subjects. Their efforts produced solutions that had a significant impact on both finance and politics.

Taxation. All rulers raised money through taxes. They taxed merchandise, exports and imports, salaries, property, land, and other items. In the 1400s northern and central Italian cities had the most sophisticated tax schemes. Many charged a tax called the gabelle on certain goods and services, wages, and criminal proceedings. A major source of revenue was the state salt monopoly* called the dogana. Government control of salt involved both the amount available and the price. During times of emergency, rulers raised the price of salt and forced citizens to buy a certain quantity. In 1427 Florence instituted the catasto, a tax based on wealth.

French citizens demonstrated a greater resistance to paying taxes than the Italians. The French tended to see taxes as temporary measures that could be used in emergencies but were not needed in times of peace. In the late 1300s public pressure led the French king to cancel taxes temporarily. Such measures decreased revenues. To make up for the shortage, French monarchs often resorted to debasing the currency (reducing the amount of precious metal in the coins). In the late 1400s a land tax called the taille became the major source of revenue. The French king Louis XI (ruled 1461—1483) raised two-thirds of his government's income from the taille. Other taxable items included wine and salt, although in France the salt tax brought in only a fraction of the money that it did in Italy.

Rulers needed the consent of the people to raise taxes. For this reason, monarchs and representative assemblies often struggled over the issue of taxation. Even when the public approved taxes, they were not easy to collect. Many Italian cities employed tax farmers, who received a fixed fee in exchange for the right to collect taxes. This was helpful in times of war, when rulers needed money as soon as possible. Tax farming also occurred in France and England. Tax farmers were often charged with unfair practices, such as collecting more money than citizens owed.

Borrowing and Debt. Taxes rarely covered all of a state's expenses, and most governments raised money by borrowing money from the clergy and from banks. Sometimes public officials forced citizens to lend money to the state at a fixed rate of interest. Occasionally, governments offered a higher rate of interest to citizens who agreed to make voluntary loans.

In times of crisis, many citizens avoided loaning money to the state for fear that it would not be repaid. In such cases public officials often sought loans from Jews, threatening them with imprisonment or expulsion if they refused to cooperate. In Italy, lending by Jews rose sharply in the 1400s.

Repaying large loans was difficult since the amount borrowed was often far more than a state could collect through taxation. Several states addressed this problem by consolidating their loans into a single debt, called a monte (mountain) in Italy. In many places citizens were able to invest in the state's debt, buying shares that paid interest and could be freely sold. In the 1400s almost every prosperous family in Florence had some of its wealth invested in the public debt.

The funding of public debt was just one of the new financial practices that evolved during the Renaissance. Over time, these practices led to the idea of a national budget. In addition, the growing reliance of rulers on wealthy individuals for revenue created common interests between the two. This bond was an important condition for the growth of the modern state.