Intra-Elite Competition and Long-Run Fiscal Development

Abstract

We offer a new rationale to help explain cross-national differences in long-run fiscal development. Higher public goods provision can translate into productivity gains in an industrializing society. Thus, capitalist elites -- unlike agricultural elites, who rely on traditional production methods -- may prefer to invest in greater fiscal capacity. Furthermore, to pay for this investment, capitalist elites may prefer to shoulder a higher tax burden through progressive direct taxation, which they may view as the least-worst economic option. To test the predictions of our argument, we exploit an original fiscal database that spans 30-plus developed and developing nations over 1870-2010. We find a positive, significant, and robust relationship between intra-elite competition among agricultural and capitalist elites and the size and structure of fiscal states. Our results show that fiscal development may take place even in the absence of interstate military competition and warfare.