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The origins of state capacity: property rights, taxation and politics

  • Timothy Besley
  • Torsten Persson

Economists generally assume that the state has sufficient institutional capacity to support markets and levy taxes. This paper develops a framework where "policy choices" in market regulation and taxation are constrained by past investments in legal and fiscal capacity. It studies the economic and political determinants of such investments, demonstrating that legal and fiscal capacity are typically complements. The results show that, among other things, common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Some correlations in cross-country data are consistent with the theory.

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File URL: http://eprints.lse.ac.uk/33768/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 33768.

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Date of creation: 2009
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Publication status: Published in American Economic Review, 2009, 99(4), pp. 1218-1244. ISSN: 0002-8282
Handle: RePEc:ehl:lserod:33768
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