Optimal Rent Extraction in Pre-Industrial England and France – Default Risk and Monitoring Costs
AbstractBeginning in the mid-seventeenth century, England changed its system of raising revenues from tax farming, combined with the granting of monopolies, to direct collection within the government administration. Rents were then transferred from tax farmers and monopolists to the central government such that English public finances improved dramatically compared to both the old system and to its major competitor, France. We offer a theory explaining this development. In our view, a cost of tax farming is the ex-ante inefficiency due to the auction mechanism while a cost of direct collection is the ex-post monitoring cost the government incurs to prevent theft. When the monitoring cost is high the government therefore allows tax farmers to extract large rents to enhance their up-front payments. In addition, because revenues materialize late under direct collection, and since the government faces limited borrowing, a high default risk makes a system of up-front collection attractive. The results of the model are consistent with historical facts from England and France.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1464.
Date of creation: 2005
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-08-13 (All new papers)
- NEP-HIS-2005-08-13 (Business, Economic & Financial History)
- NEP-PBE-2005-08-13 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James A. Robinson & Daron Acemoglu, 2000. "Political Losers as a Barrier to Economic Development," American Economic Review, American Economic Association, vol. 90(2), pages 126-130, May.
- Michael D. Bordo & Eugene N. White, 1991. "British and French Finance During the Napoleonic Wars," NBER Working Papers 3517, National Bureau of Economic Research, Inc.
- Carmichael, Lorne, 1985. "Can Unemployment Be Involuntary? Comment [Equilibrium Unemployment as a Worker Discipline Device]," American Economic Review, American Economic Association, vol. 75(5), pages 1213-14, December.
- Schmidt, Klaus M., 1996. "The costs and benefits of privatization: An incomplete contracts approach," Munich Reprints in Economics, University of Munich, Department of Economics 19773, University of Munich, Department of Economics.
- Clark, Gregory, 2001. "Debt, deficits, and crowding out: England, 1727 1840," European Review of Economic History, Cambridge University Press, Cambridge University Press, vol. 5(03), pages 403-436, December.
- Schmidt, Klaus M, 1996. "The Costs and Benefits of Privatization: An Incomplete Contracts Approach," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 12(1), pages 1-24, April.
- Quinn, Stephen, 2001. "The Glorious Revolution'S Effect On English Private Finance: A Microhistory, 1680 1705," The Journal of Economic History, Cambridge University Press, vol. 61(03), pages 593-615, September.
- Dickens, William T, et al, 1989.
"Employee Crime and the Monitoring Puzzle,"
Journal of Labor Economics, University of Chicago Press,
University of Chicago Press, vol. 7(3), pages 331-47, July.
- Hicks, J. R., 1969. "A Theory of Economic History," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198811633, October.
- Bordo, Michael D. & White, Eugene N., 1991. "A Tale of Two Currencies: British and French Finance During the Napoleonic Wars," The Journal of Economic History, Cambridge University Press, vol. 51(02), pages 303-316, June.
- Stiglitz, Joseph E, 1974.
"Incentives and Risk Sharing in Sharecropping,"
Review of Economic Studies, Wiley Blackwell,
Wiley Blackwell, vol. 41(2), pages 219-55, April.
- David Stasavage, 2002. "Credible Commitment in Early Modern Europe: North and Weingast Revisited," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 18(1), pages 155-186, April.
- Eugene N. White, 2004. "From privatized to government-administered tax collection: tax farming in eighteenth-century France -super-1 ," Economic History Review, Economic History Society, Economic History Society, vol. 57(4), pages 636-663, November.
- Toma, Eugenia Froedge & Toma, Mark, 1992. "Tax Collection with Agency Costs: Private Contracting or Government Bureaucrats?," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 59(233), pages 107-20, February.
- Metin M. Cosgel & Thomas J. Miceli, 2007.
"Tax Collection in History,"
2007-48, University of Connecticut, Department of Economics, revised Sep 2008.
- Martin Gonzalez-Eiras & Dirk Niepelt, 2004.
"Sustaining Social Security,"
2004 Meeting Papers
199, Society for Economic Dynamics.
- Martin Gonzalez Eiras & Dirk Niepelt, 2004. "Sustaining Social Security," Working Papers 72, Universidad de San Andres, Departamento de Economia, revised Jun 2004.
- Dirk Niepelt & Martin Gonzalez-Eiras, 2007. "Sustaining Social Security," 2007 Meeting Papers, Society for Economic Dynamics 95, Society for Economic Dynamics.
- Martín Gonzalez-Eiras & Dirk Niepelt, 2005. "Sustaining Social Security," CESifo Working Paper Series 1494, CESifo Group Munich.
- Gonzales-Eiras, MartÃn & Niepelt, Dirk, 2004. "Sustaining Social Security," Seminar Papers, Stockholm University, Institute for International Economic Studies 731, Stockholm University, Institute for International Economic Studies.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.