State Capacity and Long-Run Economic Performance
Economic Journal, Vol. 126, Issue 590, 2014
46 Pages Posted: 25 Apr 2012 Last revised: 15 Mar 2016
Date Written: April 18, 2014
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.
Keywords: political regimes, state capacity, economic performance, European history
JEL Classification: H11, N43, O23, P48
Suggested Citation: Suggested Citation