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The origins of state capacity: property rights, taxation and politics

Besley, Timothy and Persson, Torsten (2009) The origins of state capacity: property rights, taxation and politics. American Economic Review, 99 (4). pp. 1218-1244. ISSN 0002-8282

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Identification Number: 10.1257/aer.99.4.1218


Economists generally assume that the state has sufficient institutional capacity to support markets and levy taxes. This paper develops a framework where "policy choices" in market regulation and taxation are constrained by past investments in legal and fiscal capacity. It studies the economic and political determinants of such investments, demonstrating that legal and fiscal capacity are typically complements. The results show that, among other things, common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Some correlations in cross-country data are consistent with the theory.

Item Type: Article
Official URL:
Additional Information: © 2009 The Authors
Subjects: H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
J Political Science > JA Political science (General)
J Political Science > JF Political institutions (General)
Sets: Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Date Deposited: 30 Mar 2011 15:45
Last Modified: 30 May 2014 12:00

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