Equilibrium Impotence: Why the States and Not the American National Government Financed Economic Development in the Antebellum Era

51 Pages Posted: 6 Jul 2005 Last revised: 24 Aug 2010

See all articles by John Joseph Wallis

John Joseph Wallis

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

Barry R. Weingast

Stanford University, Department of Political Science

Date Written: June 2005

Abstract

Why did states dominate investments in economic development in early America? Between 1787 and 1860, the national government%u2019s $54 million on promoting transportation infrastructure while the states spent $450 million. Using models of legislative choice, we show that Congress could not finance projects that provided benefits to a minority of districts while spreading the taxes over all. Although states faced the same political problems, they used benefit taxation schemes -- for example, by assessing property taxes on the basis of the expected increase in value due to an infrastructure investment. The U.S. Constitution prohibited the federal government from using benefit taxation. Moreover, the federal government%u2019s expenditures were concentrated in collections small projects -- such as lighthouses and rivers and harbors -- that spent money in all districts. Federal inaction was the result of the equilibrium political forces in Congress, and hence an equilibrium impotence.

Suggested Citation

Wallis, John J. and Weingast, Barry R., Equilibrium Impotence: Why the States and Not the American National Government Financed Economic Development in the Antebellum Era (June 2005). NBER Working Paper No. w11397. Available at SSRN: https://ssrn.com/abstract=741546

John J. Wallis (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
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National Bureau of Economic Research (NBER)

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Barry R. Weingast

Stanford University, Department of Political Science ( email )

Stanford, CA 94305-6010
United States
650-723-0497 (Phone)
650-723-1808 (Fax)

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