Trade, Law and Order, and Political Liberties: Theory and Application to English Medieval Boroughs
University of Toulouse 1 - Toulouse School of Economics (TSE); New York University (NYU)
February 5, 2016
We develop a framework that puts the administration at the core of the relationship between trade and political liberties. A ruler chooses the size of an administration that (i) collects taxes and (ii) provides law and order for a representative merchant to use. To be exploited, large gains from trade require a relatively large administration. However, keeping a large administration in check is difficult. When the resulting inefficiencies are significant, the ruler grants control of the administration to the better-informed merchant, even though this facilitates tax evasion. We analyze the case of post-Norman Conquest England (1066-1307) by using evidence on taxation, commerce, and political liberties across boroughs. We use boroughs’ ownership as a proxy for the cost of controlling the administration, and find that rulers with a high cost are more willing to grant boroughs the control of their administration. Also, provided it belongs to a high-cost ruler, a borough’s propensity to receive a grant increases with its commercial importance. Finally, we find that boroughs are willing to pay higher taxes in exchange for liberties.
Number of Pages in PDF File: 51
Keywords: Institutions, Law Enforcement, Trade, Delegation, Taxation, Bureaucracy
JEL Classification: D02, D23, D73, P14, P16
Date posted: October 25, 2013 ; Last revised: May 28, 2016