The Causal Effects of Rule of Law and Property Rights on Fiscal Capacity
42 Pages Posted: 20 Apr 2020
Date Written: March 2020
Governments of rich nations tend to have high fiscal capacity while being credibly limited in their use of revenues (Johnson and Koyama 2017). This poses a puzzle. A government powerful enough to effectively enforce property rights under the rule of law is also powerful enough to prey upon the its citizens (Weingast 1995, 1993). Scholars have suggested that a credible commitment to non-predatory governance is prior to achieving high fiscal capacity (e.g., North and Weingast 1989). This is because citizens’ willingness to supply resources is a function of how they expect fiscal capacity to be used. (E.g., if they expect predatory governance, they will make fiscal capacity costly to obtain.) We analyze a panel of countries during the 1970-2015 period. We identify large, sustained jumps in how countries score on a measure of legal system and property rights quality. Using various matching methodologies (Rosenbaum and Rubin 1983), we attempt to identify post-treatment effects on measures of fiscal capacity.
Keywords: fiscal capacity, state capacity, property rights, rule of law, credible commitments, matching methodologies
JEL Classification: H10, O10, P00, P48, P51
Suggested Citation: Suggested Citation