The Origins of State Capacity: Property Rights, Taxation, and Politics

43 Pages Posted: 23 May 2008

See all articles by Timothy J. Besley

Timothy J. Besley

London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Torsten Persson

Stockholm University - Institute for International Economic Studies (IIES); London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

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Date Written: June 2007

Abstract

Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where policy choices, regulation of markets and tax rates, are constrained by economic institutions, which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.

Keywords: Development, property rights, state capacity

JEL Classification: D70, E60, H10, K40, O10

Suggested Citation

Besley, Timothy J. and Persson, Torsten, The Origins of State Capacity: Property Rights, Taxation, and Politics (June 2007). CEPR Discussion Paper No. DP6370, Available at SSRN: https://ssrn.com/abstract=1136695

Timothy J. Besley (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
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+44 20 7955 6702 (Phone)
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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Torsten Persson

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden
+46 8 163066 (Phone)
+46 8 164177 (Fax)

London School of Economics & Political Science (LSE)

Houghton Street
London, WC2A 2AE
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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