How Much War Builds a State? Fiscal Bargaining in the Shadow of War

Daniel A. N. Goldstein and Yusuf Magiya
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Daniel A. N. Goldstein: University of Oslo

No ex3gb_v1, SocArXiv from Center for Open Science

Abstract: We present a formal model that examines how external conflict reshapes the bargaining process over fiscal control between a central state and a peripheral elite. Our findings reveal an inverted U-shaped relationship between war-related pressures and state fiscal control. Low-to-moderate war pressure enhances state fiscal control by strengthening the state's bargaining power. However, excessive pressure undermines state control. This outcome is influenced by the degree to which the interests of the state and the elites align. We also identify instances when states fall into a `capacity trap,' where those with low initial fiscal control sacrifice future revenues to finance ongoing conflict. Using historical fiscal revenue data from Europe and case studies of Ancien Régime France and the Ottoman Empire, we test the predictions and find supporting evidence. These findings refine bellicist theory by highlighting the contingent benefits of conflict on state development when accounting for the complexities involved in state financing.

Date: 2026-06-24
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:ex3gb_v1

DOI: 10.31219/osf.io/ex3gb_v1

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