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War, International Finance, and Fiscal Capacity in the Long Run

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  • Queralt, Didac

Abstract

In this article I revisit the relationship between war and state making in modern times by focusing on two prominent types of war finance: taxes and foreign loans. Financing war with tax money enhances the capacity to assess wealth and monitor compliance, namely fiscal capacity. Tax-financed war facilitates the adoption of power-sharing institutions, which transform taxation into a non-zero-sum game, carrying on the effect of war in the long run. Financing war with external capital does not contribute to long-term fiscal capacity if borrowers interrupt debt service and, as part of the default settlement, war debt is condoned or exchanged for nontax revenue. The empirical evidence draws from war around the world as early as 1816. Results suggest that globalization of capital markets in the nineteenth century undermined the association between war, state making, and political reform.

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  • Queralt, Didac, 2019. "War, International Finance, and Fiscal Capacity in the Long Run," International Organization, Cambridge University Press, vol. 73(4), pages 713-753, October.
    • Handle: RePEc:cup:intorg:v:73:y:2019:i:4:p:713-753_1
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    Cited by:

    1. Albers, Thilo N.H. & Jerven, Morten & Suesse, Marvin, 2023. "The Fiscal State in Africa: Evidence from a Century of Growth," International Organization, Cambridge University Press, vol. 77(1), pages 65-101, January.
    2. Pandey, Dharen Kumar & Lucey, Brian M. & Kumar, Satish, 2023. "Border disputes, conflicts, war, and financial markets research: A systematic review," Research in International Business and Finance, Elsevier, vol. 65(C).
    3. Matthias vom Hau & José Peres-Cajías & Hillel David Soifer, 2021. "No taxation without informational foundation: On the role of legibility in tax state development," WIDER Working Paper Series wp-2021-177, World Institute for Development Economic Research (UNU-WIDER).
    4. Wei-Liang Zhang & Li-Ying Song & Muhammad Ilyas, 2023. "Can the digital economy promote fiscal effort?: Empirical evidence from Chinese cities," Economic Change and Restructuring, Springer, vol. 56(5), pages 3501-3525, October.
    5. Agustín Goenaga & Oriol Sabaté & Jan Teorell, 2023. "The state does not live by warfare alone: War and revenue in the long nineteenth century," The Review of International Organizations, Springer, vol. 18(2), pages 393-418, April.
    6. De Magalhaes, Leandro & Giovannoni, Francesco, 2022. "War and the rise of parliaments," European Economic Review, Elsevier, vol. 148(C).
    7. Weigel, Jonathan, 2020. "The participation dividend of taxation: how citizens in Congo engage more with the state when it tries to tax them," LSE Research Online Documents on Economics 104561, London School of Economics and Political Science, LSE Library.
    8. Mares, Isabela & Queralt, Didac, 2020. "Fiscal innovation in nondemocratic regimes: Elites and the adoption of the prussian income taxes of the 1890s⁎," Explorations in Economic History, Elsevier, vol. 77(C).
    9. Limberg, Julian, 2022. "Building a tax state in the 21st century: Fiscal pressure, political regimes, and consumption taxation," World Development, Elsevier, vol. 154(C).

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