The Origins of State Capacity: Property Rights, Taxation, and Politics

Timothy Besley and Torsten Persson ()

No 13028, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.

JEL-codes: D70 E60 H10 K40 O10 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-dev, nep-his, nep-hpe, nep-law, nep-mac, nep-pbe, nep-pol and nep-reg
Note: IFM POL PE
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Citations: View citations in EconPapers (31)

Published as Timothy Besley & Torsten Persson, 2009. "The Origins of State Capacity: Property Rights, Taxation, and Politics," American Economic Review, American Economic Association, vol. 99(4), pages 1218-44, September.

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Journal Article: The Origins of State Capacity: Property Rights, Taxation, and Politics (2009)
Working Paper: The origins of state capacity: property rights, taxation and politics (2009)
Working Paper: The Origins of State Capacity: Property Rights, Taxation, and Politics (2007)
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