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  4. October 2013
  5. Weak States and Steady States: The Dynamics of Fiscal Capacity

Weak States and Steady States: The Dynamics of Fiscal Capacity

  • Timothy Besley
  • Ethan Ilzetzki
  • Torsten Persson
American Economic Journal: Macroeconomics
vol. 5, no. 4, October 2013
(pp. 205-35)
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Abstract

Investments in fiscal capacity—economic institutions for tax compliance—are an important feature of economic development. This paper develops a dynamic model to study the evolution of fiscal capacity over time. We contrast a social planner's investment path with politically feasible paths. Three types of states emerge in the long run: a common-interest state where public resources are devoted to public goods, a redistributive state where additional fiscal capacity is used for transfers, and a weak state with no transfers and a low level of public goods provision. We also present some preliminary evidence consistent with the theory.

Citation

Besley, Timothy, Ethan Ilzetzki, and Torsten Persson. 2013. "Weak States and Steady States: The Dynamics of Fiscal Capacity." American Economic Journal: Macroeconomics, 5 (4): 205-35. DOI: 10.1257/mac.5.4.205

Additional Materials

JEL Classification

  • E23 Macroeconomics: Production
  • E62 Fiscal Policy
  • H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
  • H26 Tax Evasion
  • H41 Public Goods
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