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Tax farming and the origins of state capacity in England and France

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  • Johnson, Noel D.
  • Koyama, Mark

Abstract

How did modern and centralized fiscal institutions emerge? We develop a model that explains (i) why pre-industrial states relied on private individuals to collect taxes; (ii) why after 1600 both England and France moved from competitive methods for collecting revenues to allocating the right to collect taxes to a small group of financiers—an intermediate institution that we call cabal tax farming—and (iii) why this centralization led to investments in fiscal capacity and increased fiscal standardization. We provide detailed historical evidence that supports our prediction that rulers abandoned the competitive allocation of tax rights in favor of cabal tax farming in order to gain access to inside credit, and that this transition was accompanied by investments in standardization. Finally (iv) we show why this intermediate institution proved to be self-undermining in England, where it was quickly replaced by direct collection, but lasted in France until the French Revolution.

Suggested Citation

  • Johnson, Noel D. & Koyama, Mark, 2014. "Tax farming and the origins of state capacity in England and France," Explorations in Economic History, Elsevier, vol. 51(C), pages 1-20.
  • Handle: RePEc:eee:exehis:v:51:y:2014:i:c:p:1-20 DOI: 10.1016/j.eeh.2013.07.005
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:exehis:v:64:y:2017:i:c:p:1-20 is not listed on IDEAS
    2. Tuan-Hwee Sng & Chiaki Moriguchi, 2014. "Asia’s little divergence: state capacity in China and Japan before 1850," Journal of Economic Growth, Springer, vol. 19(4), pages 439-470, December.
    3. Ko, Chiu Yu & Koyama, Mark & Sng, Tuan-Hwee, 2014. "Unified China; Divided Europe," MPRA Paper 60418, University Library of Munich, Germany.
    4. Jared Rubin & Debin Ma, 2017. "The Paradox of Power: Understanding Fiscal Capacity in Imperial China and Absolutist Regimes," Working Papers 17-02, Chapman University, Economic Science Institute.
    5. Koyama, Mark, 2016. "The long transition from a natural state to a liberal economic order," International Review of Law and Economics, Elsevier, vol. 47(S), pages 29-39.
    6. Finley, Theresa & Koyama, Mark, 2016. "Plague, Politics, and Pogroms: The Black Death, Rule of Law, and the persecution of Jews in the Holy Roman Empire," MPRA Paper 72110, University Library of Munich, Germany.
    7. KOYAMA, Mark & MORIGUCHI, Chiaki & SNG, Tuan-Hwee, 2017. "Geopolitics and Asia’s Little Divergence: State Building in China and Japan After 1850," Discussion paper series HIAS-E-51, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    8. Ko, Chiu Yu & Koyama, Mark & Sng, Tuan-Hwee, 2014. "Unified China and Divided Europe," CEI Working Paper Series 2014-7, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    9. Arruñada, Benito, 2016. "How Rome enabled impersonal markets," Explorations in Economic History, Elsevier, vol. 61(C), pages 68-84.
    10. Dessí, Roberta & Piccolo, Salvatore, 2016. "Merchant guilds, taxation and social capital," European Economic Review, Elsevier, vol. 83(C), pages 90-110.
    11. Johnson, Noel, 2015. "Taxes, National Identity, and Nation Building: Evidence from France," MPRA Paper 63598, University Library of Munich, Germany.
    12. Johnson, Noel D. & Koyama, Mark, 2013. "Legal centralization and the birth of the secular state," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 959-978.
    13. Rota, Mauro, 2016. "Military spending, fiscal capacity and the democracy puzzle," Explorations in Economic History, Elsevier, vol. 60(C), pages 41-51.

    More about this item

    Keywords

    State capacity; Fiscal capacity; Standardization; Tax farming; Transaction costs;

    JEL classification:

    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • N44 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: 1913-
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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