The Causal Effects of Rule of Law and Property Rights on Fiscal Capacity

Governments of rich nations tend to have high fiscal capacity while being credibly limited in their use of revenues (Johnson and Koyama 2017). This poses a puzzle. A government powerful enough to effectively enforce property rights under the rule of law is also powerful enough to prey upon the its citizens (Weingast 1995, 1993). Scholars have suggested that a credible commitment to non-predatory governance is prior to achieving high fiscal capacity (e.g., North and Weingast 1989). This is because citizens' willingness to supply resources is a function of how they expect fiscal capacity to be used. (E.g., if they expect predatory governance, they will make fiscal capacity costly to obtain.) We analyze a panel of countries during the 1970-2015 period. We identify large, sustained jumps in how countries score on a measure of legal system and property rights quality. Using various matching methodologies (Rosenbaum and Rubin 1983), we attempt to identify post-treatment effects on measures of fiscal capacity