The Causal Effects of Rule of Law and Property Rights on Fiscal Capacity

42 Pages Posted: 20 Apr 2020

See all articles by kevin grier

kevin grier

Texas Tech University

Robin M. Grier

University of Oklahoma - Department of Economics

Andrew T. Young

Texas Tech University - Rawls College of Business

Date Written: March 2020

Abstract

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

grier, kevin and Grier, Robin M. and Young, Andrew T., The Causal Effects of Rule of Law and Property Rights on Fiscal Capacity (March 2020). Available at SSRN: https://ssrn.com/abstract=3561899 or http://dx.doi.org/10.2139/ssrn.3561899

Kevin Grier

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Robin M. Grier

University of Oklahoma - Department of Economics ( email )

729 Elm Avenue
325 Hester Hall
Norman, OK 73019-2103
United States
405 325-0581 (Phone)
405 325-5842 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/G/Kevin.B.Grier-1/

Andrew T. Young (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

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