We analyze a general commitment problem inherent to the formation of tax states: How can a state credibly promise to use tax revenues for pre-specified purposes? At the start of the early modern period in Europe, monarchs controlled expenditure. Where parliaments controlled taxation, the result...

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...