Debt, Default, and Revenue Structure: The American State Debt Crisis in the Early 1840s

58 Pages Posted: 7 Aug 2000

See all articles by Arthur Grinath

Arthur Grinath

Microeconomic Consulting and Research Associates, Inc. (MiCRA)

John Joseph Wallis

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER)

Richard Sylla

New York University - Stern School of Business, Department of Economics

Date Written: March 1997

Abstract

During the 1820s and 1830s, American state governments made large investments in canals, banks, and railroads. In the early 1840s, nine states defaulted on their debts, four ultimately repudiated all or part of their debts, and three went through substantial renegotiations. This paper examines how the states got into the debt crisis and, as a result of their earlier history, how they responded to fiscal pressure in the debt crisis. The explanation is built around revenue structures. States along the developed eastern seaboard were able to avoid politically costly property taxes, while states along the frontier were forced to rely heavily on property taxes. When faced with fiscal pressures, two of the defaulting states -- Maryland and Pennsylvania -- were able to resume debt payments, with back interest, as soon as a property tax was enacted. The other defaulting states, however, already had high property taxes. Without access to new revenue sources, these states were forced to default, and then either renegotiate or repudiate their debts.

Suggested Citation

Grinath, Arthur and Wallis, John J. and Sylla, Richard, Debt, Default, and Revenue Structure: The American State Debt Crisis in the Early 1840s (March 1997). NBER Working Paper No. h0097. Available at SSRN: https://ssrn.com/abstract=225060

Arthur Grinath

Microeconomic Consulting and Research Associates, Inc. (MiCRA) ( email )

Demonet Building
1155 Connecticut Avenue, N.W., Suite 900
Washington, DC 20036
United States

John J. Wallis (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3552 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Richard Sylla

New York University - Stern School of Business, Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0869 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
117
Abstract Views
2,093
rank
249,675
PlumX Metrics