Taxation, fiscal capacity, and credible commitment in eighteenth‐century China: the effects of the formalization and centralization of informal surtaxes

Yu Hao and Kevin Liu

Economic History Review, 2020, vol. 73, issue 4, 914-939

Abstract: This article explores a tax reform in eighteenth‐century China that formalized county‐level informal surtaxes and centralized control over them in the hands of provincial governors, in an effort to strengthen provincial fiscal capacity. The findings show that this reform increased the frequency of famine relief in cases of exceptional disaster relative to other weather conditions. The study shows that the effects were driven by the new fiscal revenues—public funds—at the governors’ discretion, not by the central government's relief actions, bureaucratic control over lower officials, or other concurrent fiscal reforms. Moreover, the reform facilitated intertemporal smoothing and inter‐regional risk sharing. However, the effects declined as soon as the central government broke its promise and began to appropriate provincial fiscal revenues. These findings not only provide evidence that fiscal centralization could enhance the provision of public goods in a premodern context, but also highlight that it was the lack of a credible commitment by the central government to the provincial governments that accounted for the short‐lived effects of the reform.

Date: 2020
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