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The Origins of State Capacity: Property Rights, Taxation, and Politics

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  • Besley, Timothy J.
  • Persson, Torsten

Abstract

Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6370.

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Date of creation: Jun 2007
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Handle: RePEc:cpr:ceprdp:6370

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Keywords: development; property rights; state capacity;

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  1. Persson, Torsten & Roland, Gérard & Tabellini, Guido, 1997. "Comparative Politics and Public Finance," CEPR Discussion Papers 1737, C.E.P.R. Discussion Papers.
  2. Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2007. "Emergence and Persistence of Inefficient States," Working Papers 0705, CREI Università degli Studi Roma Tre, revised 2007.
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  9. Marco Pagano & Paolo F. Volpin, 2005. "The Political Economy of Corporate Governance," American Economic Review, American Economic Association, vol. 95(4), pages 1005-1030, September.
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  11. Daron Acemoglu & Simon Johnson, 2003. "Unbundling Institutions," NBER Working Papers 9934, National Bureau of Economic Research, Inc.
  12. Timothy Besley & Torsten Persson, 2008. "Wars and State Capacity," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 522-530, 04-05.
  13. Daron Acemoglu, 2006. "Modeling Inefficient Institutions," NBER Working Papers 11940, National Bureau of Economic Research, Inc.
  14. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
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  17. Lopez-de-Silanes, Florencio & Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei, 2008. "The Law and Economics of Self-dealing," Scholarly Articles 2907526, Harvard University Department of Economics.
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  21. repec:fth:wobaco:1083 is not listed on IDEAS
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  23. Torsten Persson & Guido Tabellini, 2004. "Constitutional Rules and Fiscal Policy Outcomes," American Economic Review, American Economic Association, vol. 94(1), pages 25-45, March.
  24. Patrick O'Brien, 2005. "Fiscal and financial preconditions for the rise of British naval hegemony, 1485-1815," Economic History Working Papers 22326, London School of Economics and Political Science, Department of Economic History.
  25. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
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