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Fiscal capacity and warfare in Europe and Latin America in the long nineteenth century (1789-1913).

Periodic Reporting for period 1 - WARCAP (Fiscal capacity and warfare in Europe and Latin America in the long nineteenth century (1789-1913).)

Período documentado: 2017-07-01 hasta 2019-06-30

This project contributes to understanding the impact of warfare on the expansion of fiscal capacity during the long nineteenth century in Europe and the Americas. Even though wars may exert a negative short-term effect on fiscal institutions due to the destruction that they cause, several authors have suggested that over the long run they may promote fiscal innovations that improve the government’s capacity to collect taxes (e.g. Tilly, 1990; Besley and Persson, 2009; Dincecco and Prado, 2009; Queralt, 2019). However, our knowledge about state-making and the rise of fiscal capacity in late modern times is still insufficient (e.g. Hoffman, 2015). To begin with, much more emphasis should be placed on the effects exerted by limited wars. Unlike mass warfare, low-scale military conflicts do not necessarily trigger the societal and political changes associated with permanent increases of public revenues (e.g. Rasler and Thompson, 1985; Centeno, 2003). Secondly, the mediating effects of political and economic factors on war-related fiscal expansions remain underexplored (e.g. Karaman and Pamuk, 2013). The project addresses these gaps in the literature through a variety of large-N quantitative analyses and small-N comparative case studies.
The project is built around three main work packages. In the first of them, Agustín Goenaga, Oriol Sabaté and Jan Teorell analyse the fiscal impact of different type of wars in Europe and the Americas in the long nineteenth century from a quantitative perspective. On the basis of a new panel dataset of wars and public revenues from 1816 to 1913 for 27 American and European countries, we conclude that, contrary to other historical periods, warfare was not a major driver of state formation during the long nineteenth century. Only very intense conflicts, such as the Franco-Prussian War and the American Civil War, tended to have a lasting impact on the state, and such conflicts were extremely rare. As a consequence, warfare cannot explain differences in public revenues between European and American countries during this period. In fact, our data shows that disparities in the collection of public revenues narrowed between the two regions for much of this period, and only began to part ways again by the turn of the twentieth century. Moreover, whereas bellicist studies have noted that twentieth-century international wars had a positive effect on state-building while civil wars undermined state capacity, we show that this was not the case for the nineteenth century. We argue that this was the result of the nature of nineteenth-century warfare: unlike the twentieth century, civil and international conflicts did not systematically differ in military logistics and war technologies.

The second and third work packages address the mediating role of economic and political factors in the interplay between warfare and fiscal capacity by narrowing down the focus of analysis to the micro-foundations of the previous statistical results. The first resulting paper (co-authored with José Peres-Cajías) analyses the impact of the War of the Pacific (1879-1883) on the fiscal systems of Bolivia, Chile, and Peru. We argue that resource wars have positive effects on public revenues when they foster a pro-fiscal consensus among the elites or when they expand the country’s natural resource endowments. The latter, however, might be detrimental in the long-run by discouraging new investments in administrative capacity. Our empirical analysis suggests that this was the case of Chile in the aftermath of the War of the Pacific: natural resources revenues were boosted thanks to the annexation of the Peruvian and Bolivian nitrate deposits, but non-natural resources revenues faded away. In Peru, the loss of the nitrate-rich areas hindered its capacity to tax and did not spur a tax-enhancing reaction from the elites. By contrast, even if the fiscal impact of the territorial losses in Bolivia was milder than in Peru, it was sufficient to foster a new political consensus to tax other sectors of the economy. To reach these conclusions the paper provides a new dataset of disaggregated public revenues for the three countries of interest from 1850 to 1913, as well as two new datasets of parliamentary acts and civil servants.

The second paper of these work packages looks at the mechanisms that explain persistence of wartime taxes (or lack thereof) in the aftermath of limited military conflicts. To do so it focuses on the British military interventions in the Crimean War (1853-1856) and the Second Boer War (1899-1902). From a theoretical point of view, the paper proposes to look at international low-scale wars as windows of opportunity that provide the chance to political actors to implement new taxes and advance their pro-state growth agenda. The likelihood of wartime taxes being rolled back after the military pressure recedes depends on the costs and benefits perceived by political actors. The paper suggests that wartime fiscal reforms are more like to be integrated into the regular tax system after the war ends when the majority of influential political actors hold a positive attitude towards public spending and do not bear the cost of taxation. To empirically illustrate the working of this framework, the paper looks at the two aforementioned British military interventions, providing new evidence on the tax instruments used to cover the costs of the two aforementioned wars and on the population of voters and taxpayers.

Several other papers will be drawn from this project. For instance, two new large-N quantitative analyses will look, on the one hand, at the mediating effects of political regimes on the fiscal impact of limited warfare, and on the other, on the interplay between military rivalries and fiscal expansion in the nineteenth century (the datasets of which have been mostly completed). The project has also found synergies with other research agendas that also study the relationship between wars and taxation, such as the analysis of income tax progressivity and redistribution during the first half of the twentieth century. The research agenda and the results of the project have been presented at several conferences, workshops and seminars in the fields of economic history and political science, and the outputs (papers and datasets) have been (or will be) uploaded on the authors’ websites and the STANCE research program’s website (
The project provides new theoretical approaches and empirical insights about the interplay between warfare and fiscal capacity in Europe and America. Fiscal capacity has been considered a relevant aspect of state-making (e.g. Lindvall and Teorell, 2016), and has been associated to economic development and institutional stability (e.g. Johnson and Koyama, 2017). Therefore, its analysis remains essential to understand major political and economic phenomena. The project’s main conclusion is that warfare had a modest impact on the growth of fiscal capacity throughout the long nineteenth century; only under certain circumstances did limited military conflicts prompt fiscal expansion. This result has relevant implications for our understanding of the emergence and consolidation of modern territorial states: unlike in other historical periods, the diverging patterns of fiscal capacity observed during the nineteenth century can hardly be attributed to the outburst of military conflicts.