Elite Coalitions, Limited Government, and Fiscal Capacity Development: Evidence from Bourbon Mexico

Abstract

Limited government supported by elite coalitions can facilitate the development of fiscal capacity by tying rulers’ hands and enhancing their credibility. This paper presents evidence of the effect of the Mining Tribunal, an institution for the mining elite in late colonial Mexico that credibly constrained the Spanish Crown, on the development of fiscal capacity. The mining elite resisted the development of a strong fiscal state that was controlled by unconstrained Crown authorities. However, when mine owners were granted the ability to organize and protect their economic interests through a corporation, they ceased resisting. This enabled the Crown to invest in strengthening its fiscal capacity and raise more taxes from sectors other than mining. Difference-in-differences estimates using detailed fiscal data from regional royal treasuries indicate that this institution led to a substantial increase in the resources assigned to civil administration, as well as in revenues from nonmining production and trade.