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Taxation and Public Goods Provision in China and Japan before 1850

Author

Listed:
  • Sng, Tuan-Hwee
  • Moriguchi, Chiaki

Abstract

We develop a principal-agent model to study fiscal capacity in pre-modern China and Japan. Before 1850, both nations were ruled by stable dictators who relied on bureaucrats to govern their domains. We hypothesize that agency problems increase with the eographic size of a domain. In a large domain, the ruler's inability to closely monitor bureaucrats creates opportunities for the bureaucrats to exploit taxpayers. To prevent overexploitation, the ruler has to keep taxes low and government small. Our dynamic model shows that while economic expansion improves the ruler's finances in a small domain, it could lead to lower tax revenues in a large domain as it exacerbates bureaucratic expropriation. To test these implications, we assemble comparable quantitative data from primary and secondary sources. We find that the state taxed less and provided fewer local public goods per capita in China than in Japan. Furthermore, while the Tokugawa shogunate's tax revenue grew in tandem with demographic trends, Qing China underwent fiscal contraction after 1750 despite demographic expansion. We conjecture that a greater state capacity might have prepared Japan better for the arrival of the West after 1850.

Suggested Citation

  • Sng, Tuan-Hwee & Moriguchi, Chiaki, 2013. "Taxation and Public Goods Provision in China and Japan before 1850," PRIMCED Discussion Paper Series 35, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:primdp:35
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    References listed on IDEAS

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    Cited by:

    1. Mark Koyama, 2013. "Preindustrial Cliometrics," Economic Affairs, Wiley Blackwell, vol. 33(2), pages 268-278, June.
    2. Charles Angelucci & Simone Meraglia, 2015. "Trade, Law and Order, and Political Liberties: Theory and Application to English Medieval Boroughs," Discussion Papers 1509, Exeter University, Department of Economics.
    3. Broadberry, Stephen, 2013. "Accounting for the great divergence," Economic History Working Papers 54573, London School of Economics and Political Science, Department of Economic History.
    4. Angelucci, Charles & Meraglia, Simone, 2013. "Trade, Self-Governance,and the Provision of Law and Order, with an Application To Medieval English Chartered Towns," TSE Working Papers 13-443, Toulouse School of Economics (TSE).

    More about this item

    Keywords

    Comparative Institutional Analysis; Principal-Agent Problem; Dictatorships;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East
    • N40 - Economic History - - Government, War, Law, International Relations, and Regulation - - - General, International, or Comparative
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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