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The Origins of State Capacity: Property Rights, Taxation, and Politics

  • Besley, Timothy J.
  • Persson, Torsten

Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6370.

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Date of creation: Jun 2007
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Handle: RePEc:cpr:ceprdp:6370
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  1. Persson, T. & Roland, G. & Tabellini, G., 1997. "Comparative Politics and Public Finance," Papers 633, Stockholm - International Economic Studies.
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  11. Daron Acemoglu & Mikhail Golosov & Aleh Tsyvinski, 2007. "Political Economy of Mechanisms," Levine's Bibliography 321307000000000886, UCLA Department of Economics.
  12. Sargent, Thomas J & Velde, Francois R, 1995. "Macroeconomic Features of the French Revolution," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 474-518, June.
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  15. Milgrom, P. & Shannon, C., 1991. "Monotone Comparative Statics," Papers 11, Stanford - Institute for Thoretical Economics.
  16. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
  17. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  18. Simeon Djankov & Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2005. "The Law and Economics of Self-Dealing," NBER Working Papers 11883, National Bureau of Economic Research, Inc.
  19. Michael Keen & Thomas Baunsgaard, 2005. "Tax Revenue and (or?) Trade Liberalization," IMF Working Papers 05/112, International Monetary Fund.
  20. Torsten Persson & Guido Tabellini, 2004. "Constitutional Rules and Fiscal Policy Outcomes," American Economic Review, American Economic Association, vol. 94(1), pages 25-45, March.
  21. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
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  23. Patrick O'Brien, 2005. "Fiscal and financial preconditions for the rise of British naval hegemony, 1485-1815," Economic History Working Papers 22326, London School of Economics and Political Science, Department of Economic History.
  24. Timothy Besley & Torsten Persson, 2008. "Wars and State Capacity," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 522-530, 04-05.
  25. Acemoglu, Daron, 2005. "Politics and economics in weak and strong states," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1199-1226, October.
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