The Budgetary Origins of Fiscal-Military Prowess
69 Pages Posted: 1 May 2018 Last revised: 19 Oct 2018
Date Written: October 15, 2018
Why modern democracies tend to win the wars they fight has been much debated. In this paper, we investigate the budgetary sources of fiscal-military prowess from the mid-17th to the early 20th centuries. We first review evidence that states adopting credible budgets accrued substantial advantages in raising taxes and loans. Because victory in war has, since the early modern period, been largely a matter of out-spending one’s opponent, credible budgets have also conferred an advantage in winning wars. Using panel data on 10 major European powers, we show that credible budgets led to significantly larger wartime expenditures and thus better chances of winning. Since credible budgets could be adopted by decidedly non-democratic countries, such as England in 1689 or Prussia in 1848, ours is not a theory of democracy leading to military strength, as in the literature beginning with Lake (1992). Rather, it is a theory of limited government leading to military strength, as in Schultz and Weingast (1998).
Keywords: fiscal-military states, credible budgets, democratic victory thesis
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