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This paper studies the effects of mobilization for war on the development of fiscal capacity and the values of tax compliance (tax morale). We propose a dynamic setting where governments may invest resources to improve the efficiency of the fiscal apparatus and the citizens' tax morality in order to raise the necessary revenues for the defense against a threat (external or internal), and parents optimally choose to transmit their preferences of tax compliance to children. Despite fiscal capacity and tax morale are initially substitutes, we show how a dynamic complementarity may arise in equilibrium from a more efficient transmission of the values of tax compliance in countries with high fiscal capacity, and this may explain why they tend to move together over time. Under reasonable conditions, we obtain that the effect of a higher threat of war on the steady-state level of the culture of tax compliance is negative when fiscal capacity is relatively low, and positive when the latter is large. We show cross-country evidence based on war frequency, fiscal capacity, and tax morale that is consistent with the results of our theory.

Investments in fiscal capacity have traditionally been linked to warfare and democratization. However, non-democratic states also invest in fiscal capacity, even in times of peace. In fact, the majority of income taxes – a prime example of an investment in fiscal capacity – were introduced by non-democratic states in peace time. In this paper I argue that institutions such as parliaments or councils of nobles – which were implemented to solve commitment problems between ruler and elite in the face of a challenge to the regime – also solve commitment problems related to investments in fiscal capacity. Institutionalized power-sharing ensures the elite of future influence, and thus reduces the risk of the ruler using the expanded fiscal capacity opportunistically. The empirical implications are straight-forward: income taxes are more likely to be introduced in nondemocratic states with power-sharing institutions. I find support for this prediction by analyzing several new, high quality, historical datasets over political institutions, the introduction of taxes, and government tax revenue, covering as many as 54 countries from the early nineteenth century to the present day.

ABSTRACTThis paper studies the effects of mobilization for war on the development of fiscal capacity and the values of tax compliance (tax morale). We propose a dynamic setting where governments may invest resources to improve the efficiency of the fiscal apparatus and the citizens' tax morality in order to raise the necessary revenues for the defense against a threat (external or internal), and parents optimally choose to transmit their preferences of tax compliance to children. Despite fiscal capacity and tax morale are initially substitutes, we show how a dynamic complementarity may arise in equilibrium from a more efficient transmission of the values of tax compliance in countries with high fiscal capacity, and this may explain why they tend to move together over time. Under reasonable conditions, we obtain that the effect of a higher threat of war on the steady‐state level of the culture of tax compliance is negative when fiscal capacity is relatively low, and positive when the latter is large. We show cross‐country evidence based on war frequency, fiscal capacity, and tax morale that is consistent with the results of our theory.

Having sufficient fiscal capacity to tax is a key hallmark and defining feature of states, and there is a growing literature trying to explain its origins. Existing empirical evidence on fiscal capacity is scarce and focuses on large, ex-post successful territories. In this paper we study the introduction of the first centralized, permanent fiscal institutions in the multifarious territories of the Holy Roman Empire from 1400 to 1800. We link information on fiscal centralization and the size and survival of territories to an extensive dataset on state-formation and growthrelated outcomes. We empirically confirm that territories are more likely to centralize when neighboring territories are centralized and when they are exposed to a higher threat of war. In line with the literature on the consequences of fiscal capacity, we show that centralized territories are more likely to survive than non-centralized territories and as a result grow more in size. They invest more in administrative and military structures, but investments in the military only occur in the core areas of centralized territories. This contradicts the central assumption of models on fiscal capacity which states that investments into the military are a non-excludable public good.

Thesis (D.P.A.)--National Institute of Development Administration, 2017 ; The purpose of this research is to 1) study various characters on the development of revenue structures and fiscal capacity of municipalities in Thailand, 2) investigate the relationship among factors affecting the municipal fiscal capacity, and 3) propose policy recommendations regarding improving and heightening the municipal fiscal capacity to different concerned agencies. ; Initially, conduct the part of the literature review, which led to the scope of the study and the quantitative research, which was employed. Annual secondary data of 2,441, which were in a form of pooled cross-section data from 2012-2015, were used along with the analysis on the operating ratio and ordinal logistic regression analysis. ; The findings on the municipal revenue structure during the past four years reveals that revenues of most municipalities are from government allocations and grants, as high of a proportion as 88.95% whereas their local levied taxes are comparably small. In addition, the analytical results also show that overall municipalities possess fiscal capacity at a low level, especially the larger ones, as the larger they are, the lesser their fiscal capacity since they need to provide broader public services. ; The empirical theoretical test discloses that 1) organizational resource theory on an issue of socio-economic factors is both an internal factor of availability within municipalities and an external factor which provides additional advantages over others and that the socio-economic factors play an important role in municipal fiscal ; capacity. 2) Having an institutional model is the result from formats and attributes set by the Municipal Act which makes municipalities possess a similar character. 3) The relationship built on years of election is due to the trends of decentralization and governance being globally popular that further results in the maximum utilization of resources to cope with more demand of public services, which in ...

This paper develops a predatory theory approach to understanding state failure. Predatory theory expects that state revenue extraction is central to the ability of states to engage in any other activities. States that are able to maximize their revenue extraction subject to well-known constraints are therefore likely to avoid state failure. On the other hand, when state failure occurs, it should reduce state revenue extraction. These hypotheses receive mixed support in several two-stage least-squares time-series analyses that control for the endogenous relationship between state fiscal capacity and state failure. While state failure reduces state fiscal capacity, state fiscal capacity does not deter state failure onset or incidence. In the sub-Saharan African subsample, state fiscal capacity does reduce the incidence of state failure despite a reciprocal negative effect. Adapted from the source document.