Warfare, fiscal capacity, and performance

Abstract

We exploit differences in casualties sustained in pre-modern wars to estimate the impact of fiscal capacity on economic performance. In the past, states fought different amounts of external conflicts, of various lengths and magnitudes. To raise the revenues to wage wars, states made fiscal innovations, which persisted and helped to shape current fiscal institutions. Economic historians claim that greater fiscal capacity was the key long-run institutional change brought about by historical conflicts. Using casualties sustained in pre-modern wars to instrument for current fiscal institutions, we estimate substantial impacts of fiscal capacity on GDP per worker. The results are robust to a broad range of specifications, controls, and sub-samples.

Asia’s little divergence: state capacity in China and Japan before 1850

“…In this paper, we show that the divergence of their state capacity was well underway before 1850. In light of recent findings on the importance of a proactive state in facilitating the transition from stagnation to growth (Doepke 2004;Galor et al 2009;Dincecco and Prado 2012), we conjecture that Tokugawa Japan's legacy of a strong state might have prepared Japan better for the age of industrialization. In other words, we see the proactive Meiji government as a product of Japan's history, not a radical break from the past.…”

“…10 The European experience indicates that most states had a strong fiscal system in place before industrializing (Dincecco 2011;Johnson and Koyama 2014a, b). Indeed, there is a growing body of theoretical and empirical research highlighting the importance of state capacity in facilitating modern economic growth (Acemoglu 2005;Persson 2009, 2013;Dincecco and Prado 2012;Dincecco and Katz 2014). Studies also show that a proactive state could accelerate the transition from stagnation to growth by implementing policies that promote human capital formation (Doepke 2004;Doepke and Zilibotti 2005;Galor and Moav 2006;Galor et al 2009).…”

Military conflict and the rise of urban Europe

“…Scholars have linked historical warfare and state formation with modern prosperity (Bates, 2010, O'Brien, 2011, Rosenthal and Wong, 2011, Dincecco and Prado, 2012, Voigtländer and Voth, 2013a. As described, our results show that warfare helps explain the historical transformation from countryside to city.…”

Is Africa Different? Historical Conflict and State Development

“…Gennaioli and Voth (2014) find a positive and significant relationship between interstate conflicts and state consolidation in Europe between 1500 and 1800. Dincecco and Prado (2012) show that fiscal capacity today is greater for countries that fought more wars between 1816 and 1913.…”