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Bounded Leviathan: or why North & Weingast are only right on the right half

‘Constitutions and Commitments” has inspired the economic literature on the importance of “Legal origins” (LaPorta et al., 1998, 2008), which vindicates the notion that post-Glorious Revolution English institutions were particularly conducive to economic growth. More recently economists have acknowledged that growth in fact depends on “state capacity”. This encompasses not only investor protection (legal capacity) but also the ability of the state to finance itself, “fiscal capacity”.(Besley and Persson, 2009, 2010) show that the protection of private property rights and that of public property rights to taxation are linked and most likely co-evolutionary. However, the precise relation between the two is anything but clear. This paper argues that North and Weingast’s model’s one-sided focus on state coercion that threatened subjects’ property rights has obscured the relation between coercion used in revenue collection and total revenue role of fiscal capacity. We suggest a very simple model to show that this relationship between state fiscal capacity and legal capacity is not linear, especially in the phase of nation state building. The case of Spain provides empirical evidence for the existence of states were an increase in coercion would have improved fiscal capacity, but high levels of legal capacity paradoxically prevented the ruler from adopting this path. We use financial market developments to show the serious welfare implications that resulted from such a lack of coordination and integration.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39722.

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Date of creation: 24 Jun 2012
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Handle: RePEc:pra:mprapa:39722
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  1. Regina Grafe & M.A. Irigoin, 2006. "Bargaining for Absolutism: A Spanish Path to Nation State and Empire Building," Economics Series Working Papers 2006-W65, University of Oxford, Department of Economics.
  2. Maurizio Drelichman & Joachim Voth, 2011. "Risk sharing with the monarch: Excusable defaults and contingent debt in the age of Philip II, 1556-1598," Economics Working Papers 1284, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2013.
  3. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
  4. Drelichman, Mauricio & Voth, Hans-Joachim, 2011. "Risk Sharing with the Monarch: Contingent Debt and Excusable Defaults in the Age of Philip II, 1556-1598," Economics working papers mauricio_drelichman-2011-, Vancouver School of Economics, revised 06 Jun 2012.
  5. Lane, Frederic C., 1958. "Economic Consequences of Organized Violence," The Journal of Economic History, Cambridge University Press, vol. 18(04), pages 401-417, December.
  6. Regina Grafe & Alejandra Irigoin, 2012. "A stakeholder empire: the political economy of Spanish imperial rule in America," Economic History Review, Economic History Society, vol. 65(2), pages 609-651, 05.
  7. Drelichman, Mauricio & Voth, Hans-Joachim, 2010. "Serial Defaults, Serial Profits: Returns to Sovereign Lending in Habsburg Spain, 1566-1600," Economics working papers mauricio_drelichman-2010-, Vancouver School of Economics, revised 04 Jul 2011.
  8. Ashworth, William J., 2003. "Customs and Excise: Trade, Production, and Consumption in England 1640-1845," OUP Catalogue, Oxford University Press, number 9780199259212, March.
  9. Grafe, Regina & Irigoin, Maria Alejandra, 2006. "The Spanish Empire and its legacy: fiscal redistribution and political conflict in colonial and post-colonial Spanish America," Journal of Global History, Cambridge University Press, vol. 1(02), pages 241-267, July.
  10. Drelichman, Mauricio & Voth, Hans-Joachim, 2011. "Funding Empire: Risk, Diversification, and the Underwriting of Early Modern Sovereign Loans," Economics working papers mauricio_drelichman-2011-, Vancouver School of Economics, revised 06 Jul 2011.
  11. Manfredi Manna & Gabriella Slomp, 1994. "Leviathan: Revenue-maximizer or glory-seeker?," Constitutional Political Economy, Springer, vol. 5(2), pages 159-172, March.
  12. Sussman, Nathan & Yafeh, Yishay, 2006. "Institutional Reforms, Financial Development and Sovereign Debt: Britain 1690 1790," The Journal of Economic History, Cambridge University Press, vol. 66(04), pages 906-935, December.
  13. Earl J. Hamilton, 1943. "Monetary Disorder and Economic Decadence in Spain, 1651-1700," Journal of Political Economy, University of Chicago Press, vol. 51, pages 477.
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