State Capacity, Labor Coercion and Political Control in the US South and Brazil

• In Event: Taxation and State Capacity: Insights from the Developing World

Abstract

A recent literature in economics and political science has shown that early investments in state capacity are associated with greater economic development today. Yet the historical processes by which high capacity states emerged remains poorly understood. While some scholars have shown that high levels of economic inequality and labor coercion are correlated with lower early investments in state capacity, this work could be confounded by omitted factors. In this paper, we challenge this standard account. First, we document substantial spatial and temporal variation in fiscal capacity in Brazil and the US South, two large and highly unequal settings characterized by the widespread use of coerced labor. We propose a new theory to explain this previously overlooked variation. We argue that economic elites in highly unequal societies will support increasing taxation on themselves and creating greater infrastructural capacity when they have political control over public resources. When they lack political control or if future prospects of control are uncertain, we argue that greater state capacity poses a redistributive threat and therefore they will undermine efforts to increase state capacity. Using original archival data of local tax revenues between 1840 and 1920 in Brazil and the US South, we find that our theoretical argument explains the observed within-state variation in fiscal capacity. In addition to increasing our understanding of how state capacity developed historically in the Western Hemisphere, this work has the potential to influence how we understand the determinants of state capacity in developing countries today.

Authors

• Giuliana Pardelli, New York University Abu Dhabi

• Jeffrey Louis Jensen, New York University-Abu Dhabi