Tax Farming and the Origins of State Capacity in England and France

42 Pages Posted: 17 Aug 2012 Last revised: 2 Aug 2013

See all articles by Noel D. Johnson

Noel D. Johnson

George Mason University - Department of Economics; George Mason University - Mercatus Center

Mark Koyama

George Mason University - Department of Economics; George Mason University - Mercatus Center

Date Written: July 25, 2013

Abstract

How did modern and centralized fiscal institutions emerge? We develop a model that explains (i) why pre-industrial states relied on private individuals to collect taxes; (ii) why after 1600 both England and France moved from competitive methods for collecting revenues to allocating the right to collect taxes to a small group of financiers -- a intermediate institution that we call cabal tax farming -- and (iii) why this centralization led to investments in fiscal capacity and increased fiscal standardization. We provide detailed historical evidence that supports our prediction that rulers abandoned the competitive allocation of tax rights in favor of cabal tax farming in order to gain access to inside credit and that this transition was accompanied by investments in standardization. Finally (iv) we show why this intermediate institution proved to be self-undermining in England where it was quickly replaced by direct collection, but lasted in France until the French Revolution.

Keywords: State Capacity, Standardization, Tax Farming, France, England, Transaction Costs

JEL Classification: N23, N44, H11, K00, D02

Suggested Citation

Johnson, Noel D. and Koyama, Mark, Tax Farming and the Origins of State Capacity in England and France (July 25, 2013). GMU Working Paper in Economics No. 12-49. Available at SSRN: https://ssrn.com/abstract=2130956 or http://dx.doi.org/10.2139/ssrn.2130956

Noel D. Johnson

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

George Mason University - Mercatus Center

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

Mark Koyama (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://mason.gmu.edu/~mkoyama2/About.html

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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