Risk, Transaction Costs, and Tax Assignment: Government Finance in the Ottoman Empire

Metin Cosgel () and Thomas Miceli

The Journal of Economic History, 2005, vol. 65, issue 3, 806-821

Abstract: Risk and transaction costs often provide competing explanations of institutional outcomes. In this article we argue that they offer opposing predictions regarding the assignment of fixed and variable taxes in a multi-tiered governmental structure. Although the central government can pool regional risks from variable taxes, local governments can measure variable tax bases more accurately. Evidence on tax assignment from the mid-sixteenth-century Ottoman Empire supports the transaction cost explanation, suggesting that risk matters less because insurance can be obtained in a variety of ways.

Date: 2005
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