International Trade, the Great War, and the Origins of Taxation: Sister Republics Parting Ways

Abstract

The First World War was a watershed moment for the development of the modern tax state. Yet, whereas the tax yield strongly increased in this period, little is known about how the tax mix changed, in particular regarding the turn to direct taxation. Examining the two ‘Sister Republics’ Switzerland and the USA, this paper demonstrates that tax reforms in this critical period for modern tax systems were conditioned by coalitions among producer groups, which had already come into existence before the war. Most notably, farmers and their position on international trade were important in shaping coalitions on the turn to direct taxation. The Great War's main role was to temporarily interrupt (Switzerland) or cement (USA) the tax system's reorientation. The paper thus shows that war‐induced tax reforms have a lasting impact on the tax mix only if powerful coalitions support these reforms independently of the war effort.

Ethnic Minorities, Interstate War, and Popular Support for Fiscal Capacity Development

“…Switzerland's average annual mobilization costs for the war period (1914)(1915)(1916)(1917)(1918) were more than twice as high as regular total federal government revenue in the immediate pre-war period. At the same time, the conflict removed extraction options because of the decline in international trade (Emmenegger & Walter, 2022). With the war entry of Italy in April 1915, Switzerland was surrounded by belligerent countries.…”