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Equilibrium Impotence: Why the States and Not the American National Government Financed Economic Development in the Antebellum Era

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  • John Joseph Wallis
  • Barry R. Weingast

Abstract

Why did states dominate investments in economic development in early America? Between 1787 and 1860, the national government%u2019s $54 million on promoting transportation infrastructure while the states spent $450 million. Using models of legislative choice, we show that Congress could not finance projects that provided benefits to a minority of districts while spreading the taxes over all. Although states faced the same political problems, they used benefit taxation schemes -- for example, by assessing property taxes on the basis of the expected increase in value due to an infrastructure investment. The U.S. Constitution prohibited the federal government from using benefit taxation. Moreover, the federal government%u2019s expenditures were concentrated in collections small projects -- such as lighthouses and rivers and harbors -- that spent money in all districts. Federal inaction was the result of the equilibrium political forces in Congress, and hence an equilibrium impotence.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11397.

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Date of creation: Jun 2005
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Handle: RePEc:nbr:nberwo:11397

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  1. Ronald N. Johnson & Gary D. Libecap, 2003. "Transaction Costs and Coalition Stability under Majority Rule," Economic Inquiry, Western Economic Association International, vol. 41(2), pages 193-207, April.
  2. Sylla, Richard & Legler, John B. & Wallis, John J., 1987. "Banks and State Public Finance in the New Republic: The United States, 1790–1860," The Journal of Economic History, Cambridge University Press, vol. 47(02), pages 391-403, June.
  3. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
  4. Weingast, Barry R & Marshall, William J, 1988. "The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organized as Markets," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 132-63, February.
  5. Inman, Robert P & Fitts, Michael A, 1990. "Political Institutions and Fiscal Policy: Evidence from the U.S. Historical Record," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(0), pages 79-132.
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Cited by:
  1. Stephen Haber & Enrico Perotti, 2008. "The Political Economy of Financial Systems," Tinbergen Institute Discussion Papers 08-045/2, Tinbergen Institute.
  2. John Joseph Wallis, 2006. "The Concept of Systematic Corruption in American History," NBER Chapters, in: Corruption and Reform: Lessons from America's Economic History, pages 23-62 National Bureau of Economic Research, Inc.
  3. Stephen Haber & Enrico Perotti, 2008. "The Political Economy of Financial Systems," Tinbergen Institute Discussion Papers 08-045/2, Tinbergen Institute.
  4. Jorge M. Streb & Gustavo Torrens, 2011. "La economía política de la política fiscal," CEMA Working Papers: Serie Documentos de Trabajo. 455, Universidad del CEMA.

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