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Taxation and Public Goods Provision in China and Japan before 1850

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  • Tuan-Hwee Sng
  • Chiaki Moriguchi

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 geographic 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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Bibliographic Info

Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd12-284.

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Date of creation: Mar 2013
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Handle: RePEc:hst:ghsdps:gd12-284

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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.
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Cited by:
  1. Stephen Broadberry, 2013. "Accounting for the great divergence," Economic History Working Papers 54573, London School of Economics and Political Science, Department of Economic History.
  2. 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).

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