Author: Timothy J. BesleyPublisher:
ISBN:
Category :
Languages : en
Pages : 42
Book Description
Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where quot;policy choicesquot;, regulation of markets and tax rates, are constrained by quot;economic institutionsquot;, which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.