States make war, and wars make states. The second clause of Tilly's dictum assumes that the fiscal effort that states exert to wage war persists over time. This paper investigates the effect of war on long-term fiscal capacity as a function of two types of war financing instruments: taxes and loans. Tax-waged wars are argued to exert lasting effects on state capacity, as new taxes require enhancements of the state apparatus as well as complementary fiscal innovations. Loan-waged wars may not contribute to long-term state capacity, as countries might default once the war is over, thus preempting any persistent fiscal effect. Importantly, the way war is waged might be endogenous. To cope with this possibility, I exploit unanticipated crashes in the nineteenth-century international capital markets, which temporarily banned warring states from borrowing regardless of their (un)observed characteristics. The analysis shows that countries that fought wars while the international credit markets were down have today higher fiscal capacity, measured by income tax ratios as well as the size of the tax administration. Altogether, the paper advances the conditions under which wars exert positive and lasting effects on state building.
Didac Queralt is a junior professor at the Institute of Political Economy and Governance (IPEG) in Barcelona. He received his Ph.D. from the NYU Politics Department in September 2012.
His research lies at the intersection of comparative political economy and international relations, with a focus on the political economy of fiscal capacity building in Europe (East and West) and the Americas. Using formal methods, he investigates tax compliance in scenarios of low fiscal capacity, as well as the replacement of old forms of taxation (e.g. trade taxes) by modern extractive technologies (e.g. income taxation) that result from deliberate investment in the tax administration. He analyzes the theoretical predictions using contemporary data from developing economies in Latin America and Eastern Europe, as well as historical data for European powers in the pre-modern era.
In addition, he investigates the origins of direct taxation in the Western World, both with macro- and micro-data, as well as the electoral politics underlying the expansion of the fiscal state. Currently, he is involved in a quasi-experimental test of the legacy of pre-modern wars on state capacity, and an field experiment on tax progressivity in Colombia,