Debt, Default, and Revenue Structure: The American State Debt Crisis in the Early 1840s

Arthur Grinath, John Joseph Wallis and Richard Sylla

No 97, NBER Historical Working Papers from National Bureau of Economic Research, Inc

Abstract: During the 1820s and 1830s, American state governments made large investments in canals, banks, and railroads. In the early 1840s, nine states defaulted on their debts, four ultimately repudiated all or part of their debts, and three went through substantial renegotiations. This paper examines how the states got into the debt crisis and, as a result of their earlier history, how they responded to fiscal pressure in the debt crisis. The explanation is built around revenue structures. States along the developed eastern seaboard were able to avoid politically costly property taxes, while states along the frontier were forced to rely heavily on property taxes. When faced with fiscal pressures, two of the defaulting states -- Maryland and Pennsylvania -- were able to resume debt payments, with back interest, as soon as a property tax was enacted. The other defaulting states, however, already had high property taxes. Without access to new revenue sources, these states were forced to default, and then either renegotiate or repudiate their debts.

JEL-codes: N21 N41 (search for similar items in EconPapers)
Date: 1997-03
New Economics Papers: this item is included in nep-pub
Note: DAE
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Citations: View citations in EconPapers (10)

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