The Relevance and Limits of Taxation as an Aid to Foster Megaprojects

This paper analyzes, from a theoretical perspective, the relevance that taxation may have on the shaping, effectiveness and efficiency of Mega-Projects. Its main background hypothesis is that taxation must be efficient. This entails that tax systems should be devised so that the incidence on tax revenues of the deadweight losses caused by taxation, as well as the costs for tax compliance, supervision and collection is minimized. This efficiency requirement is particularly relevant with regard to the use of taxation as a tool to stimulate private sector’s behaviors that increase the present and/or future welfare of all or part of the community members. The choice of taxation as a stimulus tool can prove effective where the relevant market/project (in our case Mega-Projects) is characterized by relevant externalities. The second background hypothesis is that, within the legal systems of many States, the use of taxation as a stimulus tool is subject to certain legal constraints, the most relevant of which is the respect of the principle of equality and the rule of reason. Against this background, the paper draws from the study of legal and public finance materials, case law and practice, in order to outline a framework for the lawful and efficient use of taxation as a stimulus for Mega-Projects and set the basis for a subsequent quantitative analysis intended to establish under what circumstances, and in what forms, tax incentives should be used as a tool to promote and support them.