State Capacity and Long-Run Economic Performance
University of Michigan at Ann Arbor
California Institute of Technology - Division of the Humanities and Social Sciences
April 18, 2014
Forthcoming, Economic Journal
We present new evidence about the long-run relationship between state capacity -- the fiscal and administrative power of states -- and economic performance. Our database is novel and spans 11 European countries and 4 centuries from the Old Regime to World War I. We argue that national governments undertook two political transformations over this period: fiscal centralization and limited government. We find a significant direct relationship between fiscal centralization and economic growth. Furthermore, we find that an increase in the state's capacity to extract greater tax revenues was one mechanism through which both political transformations improved economic performance. Our analysis shows systematic evidence that state capacity is an important determinant of long-run economic growth.
Number of Pages in PDF File: 46
Keywords: political regimes, state capacity, economic performance, European history
JEL Classification: H11, N43, O23, P48
Date posted: April 25, 2012 ; Last revised: April 19, 2014
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