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War Finance and the Modern State

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  • Vesperoni , Alberto

    (Stockholm School of Economics)

Abstract

The institutional setting of the modern state is characterized by tax- ation, parliament, central banking and public debt. This work models war as a contest, where expenditures are funded in the financial market, and explores the complementary effects of these four institutions. If there is free entry in the financial market, taxation makes victory more likely, while under forced loans it increases the chances of defeat. With free entry, parliament and central bank are individually ineffective while they are a perfect substitute for taxation when both are in place. If the financial market is monopolized, the investor lends to both sides of the conflict and may want the states to develop these institutions to increase its profits.

Suggested Citation

  • Vesperoni , Alberto, 2013. "War Finance and the Modern State," NEPS Working Papers 6/2013, Network of European Peace Scientists.
    • Handle: RePEc:ris:nepswp:2013_006
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    References listed on IDEAS

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    More about this item

    Keywords

    War; Taxation; Parliament; Central banking; Public debt;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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