Investing in Fiscal Capacity - Legislative Debates and Taxation in the UK

• In Event: Appetitive States

Abstract

A dominant explanation for the development of fiscal capacity emphasizes the role of war and the preparation for war on the expansion of tax revenues collected by the central state (e.g., Besley & Persson, 2009; Scheve & Stasavage, 2016; Tilly, 1990). These “bellicist theories” make distinct claims about the mechanisms that link external military pressures with the development of fiscal capacity. First, these studies assert that military threats put pressure on public finances and create the need to expand tax revenues (Gennaioli & Voth, 2015; Hintze, 1975; Karaman & Pamuk, 2013; Tilly, 1985, 1990). Second, many of them also argue that external military threats can reduce resistance to higher levels of fiscal extraction and facilitate collective investments in fiscal capacity (Besley & Persson, 2009, 2011; Scheve & Stasavage, 2010, 2012, 2016).

This paper examines these two claims using fine-grained legislative data from the United Kingdom. To this effect, we introduce a new dataset that includes the text and metadata of more than 2.45 million interventions by members of the British Parliament (MPs) from over 22,000 parliamentary debates between 1817 to 1939. During those years, the United Kingdom engaged in numerous military conflicts and introduced fiscal reforms that would leave a profound imprint in future tax systems. If the mechanisms outlined above were present during the build-up of modern states, we would expect them to reveal themselves in our case of study.

To analyze this corpus, we combine tools of automated text analysis with in-depth qualitative analysis of key parliamentary sittings when major tax reforms were discussed. In the first part of the analysis, we measure the presence and salience of military and fiscal matters in each parliamentary sitting. This allows us to evaluate whether taxation was more prominent in parliamentary debates during periods in which military concerns were also present and to what extent these periods coincided with intense international wars. In the second part of the analysis, we evaluate the claim that external military pressures facilitate collective investments in fiscal capacity as state and societal actors rally-around-the-flag of external defence. To do this, we rely on sentiment analysis to calculate the dispersion in the tone (more positive or more negative) among the interventions in a parliamentary sitting. This allows us to explore whether fiscal debates were more likely to display lower levels of conflict when military issues were also mentioned. Finally, in the third part, we carry out in-depth process tracing of a select number of debates to examine whether references to military concerns contributed to the success or failure of attempts to expand the fiscal capacity of the British state.

Our analyses support both claims about the mechanisms that link military pressures to the development of fiscal states. First, we find consistent evidence that debates in which military considerations were recurrently mentioned tended to focus more on taxation. We also find that these debates were more likely to occur during periods of intense interstate wars. Second, our models also show that fiscal debates in which military issues were present tended to be less contentious. Third, we find qualitative evidence that references to military concerns contributed to lower levels of contestation in debates that culminated in successful fiscal reforms.

The paper makes theoretical, empirical, and methodological contributions to research in political development. At a theoretical level, we provide a more precise account of the political mechanisms that link military threats to fiscal changes. We show external threats not only contributed to the development of contemporary fiscal states by fostering major tax reforms, but often played a major role in halting efforts to dismantle fiscal capacity built in the past.

Empirically, we collect and analyse a wealth of data from an influential case during the years of most dramatic fiscal development to test the mechanisms that underpin much of the bellicist literature.

At a methodological level, we propose a new approach to study the historical drivers of state building using legislative data. By bringing parliamentary data to the study of fiscal capacity, this paper seeks to complement other indicators centred on fiscal institutions, outputs, and outcomes. This allows us to directly observe how different factors proposed in the literature shaped the content and framing of political negotiations around the expansion or retrenchment of fiscal capacity. Moreover, these measures offer the opportunity to study both successful and failed attempts of tax reform, as well as periods of intense fiscal activity that were not associated to discreet institutional changes or higher tax revenues. These instances must be taken into account if we want to understand the development of fiscal capacity in the long run.

Authors

• Agustin Alonso Goenaga Orrego, Lund University

• Oriol Sabaté, University of Barcelona