SEMINAR: War and Fiscal Centralization
School of Management and Administrative Sciences Department of Economics Seminar: War and Fiscal Centralization
18.09.2017 15:00
YER : Batı Kampüsü - 2008
Haldun EVRENK (Economics, TOBB-ETU)
joint with Erol ÖZVAR (Marmara University)

On his discussion of the emergence of the modern nation state with its extensive fiscal powers and abilities in Western Europe, Charles Tilly noted that “state made war and war made the state.” Several recent studies provide an explanation based on the increasing cost of war due to the military revolution in 16th and 17th centuries and the efficiency of fiscal centralization. In this paper, we focus on the incentives of local power holders to cooperate with the ruler in moving towards fiscal cooperation under an external threat. Our argument is that the ruler’s lack of monopoly power over tax collection reduces his incentives to provide optimal military protection over the territory on which he shares tax revenue with a local power holder. This, in turn, reduces the expected payoff of the local power holder. We find that the aggregate gain from fiscal centralization increases in (i) the likelihood of war, (ii) the extend of decentralization, (iii) the fraction of local power holder’s tax base at risk due to war.