The Origins of State Capacity: Property Rights, Taxation, and Politics
American Economic Review
vol. 99,
no. 4, September 2009
(pp. 1218-44)
Abstract
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. (JEL D72, E62, H11, H20, P14)Citation
Besley, Timothy, and Torsten Persson. 2009. "The Origins of State Capacity: Property Rights, Taxation, and Politics." American Economic Review, 99 (4): 1218-44. DOI: 10.1257/aer.99.4.1218Additional Materials
JEL Classification
- D72 Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
- E62 Fiscal Policy
- H11 Structure, Scope, and Performance of Government
- H20 Taxation, Subsidies, and Revenue: General
- P14 Capitalist Systems: Property Rights