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Lord of the lemons: Origin and dynamics of state capacity

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  • Huning, Thilo R.
  • Wahl, Fabian

Abstract

To better understand the role of taxation in the emergence of states, this article presents an incomplete contract model of an agricultural society in which information asymmetries cause inefficient taxation, and hence outmigration, uprisings, and rent-seeking, but also urbanization. We propose a geographic index of information costs, observability, to test our model. Our case study is the Holy Roman Empire, which had a relatively homogeneous institutional framework, state of technology, culture, and ethnic composition across hundreds of observed states, for over 500 years. We find a robust link between observability and states' tax capacity, their size, and their survival.

Suggested Citation

  • Huning, Thilo R. & Wahl, Fabian, 2017. "Lord of the lemons: Origin and dynamics of state capacity," Hohenheim Discussion Papers in Business, Economics and Social Sciences 22-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    • Handle: RePEc:zbw:hohdps:222017
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    Cited by:

    1. Torben Dall Schmidt & Peter Sandholt Jensen & Amber Naz, 2018. "Agricultural productivity and economic development: the contribution of clover to structural transformation in Denmark," Journal of Economic Growth, Springer, vol. 23(4), pages 387-426, December.

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    More about this item

    Keywords

    state capacity; principal-agent problem; taxation; Holy Roman Empire;
    All these keywords.

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • N93 - Economic History - - Regional and Urban History - - - Europe: Pre-1913
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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