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Taxation and Public Goods Provision in China and Japan before 1850

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  • Sng, Tuan-Hwee
  • Moriguchi, Chiaki

Abstract

We develop a principal-agent model to study fiscal capacity in pre-modern China and Japan. Before 1850, both nations were ruled by stable dictators who relied on bureaucrats to govern their domains. We hypothesize that agency problems increase with the eographic size of a domain. In a large domain, the ruler's inability to closely monitor bureaucrats creates opportunities for the bureaucrats to exploit taxpayers. To prevent overexploitation, the ruler has to keep taxes low and government small. Our dynamic model shows that while economic expansion improves the ruler's finances in a small domain, it could lead to lower tax revenues in a large domain as it exacerbates bureaucratic expropriation. To test these implications, we assemble comparable quantitative data from primary and secondary sources. We find that the state taxed less and provided fewer local public goods per capita in China than in Japan. Furthermore, while the Tokugawa shogunate's tax revenue grew in tandem with demographic trends, Qing China underwent fiscal contraction after 1750 despite demographic expansion. We conjecture that a greater state capacity might have prepared Japan better for the arrival of the West after 1850.

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File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/25477/1/No35-dp.pdf
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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series PRIMCED Discussion Paper Series with number 35.

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Length: 41 p.
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:hit:primdp:35

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Keywords: Comparative Institutional Analysis; Principal-Agent Problem; Dictatorships;

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  1. Dan Usher, 1986. "The Dynastic Cycle and the Stationary State," Working Papers 671, Queen's University, Department of Economics.
  2. Gustav Hansson & Ola Olsson, 2006. "Country Size and the Rule of Law: Resuscitating Montesquieu," DEGIT Conference Papers c011_033, DEGIT, Dynamics, Economic Growth, and International Trade.
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  10. KentG. Deng, 2008. "Miracle Or Mirage? Foreign Silver, China'S Economy And Globalization From The Sixteenth To The Nineteenth Centuries," Pacific Economic Review, Wiley Blackwell, vol. 13(3), pages 320-357, 08.
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Cited by:
  1. Angelucci, Charles & Meraglia, Simone, 2013. "Trade, Self-Governance,and the Provision of Law and Order, with an Application To Medieval English Chartered Towns," TSE Working Papers 13-443, Toulouse School of Economics (TSE).
  2. Broadberry, Stephen, 2013. "Accounting For The Great Divergence," CAGE Online Working Paper Series 160, Competitive Advantage in the Global Economy (CAGE).

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