Weak States and Steady States: The Dynamics of Fiscal Capacity
- (pp. 205-35)
Abstract
Investments in fiscal capacity—economic institutions for tax compliance—are an important feature of economic development. This paper develops a dynamic model to study the evolution of fiscal capacity over time. We contrast a social planner's investment path with politically feasible paths. Three types of states emerge in the long run: a common-interest state where public resources are devoted to public goods, a redistributive state where additional fiscal capacity is used for transfers, and a weak state with no transfers and a low level of public goods provision. We also present some preliminary evidence consistent with the theory.Citation
Besley, Timothy, Ethan Ilzetzki, and Torsten Persson. 2013. "Weak States and Steady States: The Dynamics of Fiscal Capacity." American Economic Journal: Macroeconomics, 5 (4): 205-35. DOI: 10.1257/mac.5.4.205Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E62 Fiscal Policy
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H26 Tax Evasion
- H41 Public Goods
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