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Weak states and steady states: the dynamics of fiscal capacity

By Timothy Besley, Ethan Ilzetzki and Torsten Persson


Investments in fiscal capacity — economic institutions for tax compliance — are an important feature of economic development. This paper develops a dynamic model to study such investments and their evolution over time. We contrast a social planner’s investment path with paths where political constraints are important. Three types of states emerge in the long run: (1) a common-interest state where public resources are devoted to public goods, (2) a redistributive state where additional fiscal capacity is used for transfers, and (3) a weak state with no transfers and a low level of public goods provision. The paper characterizes the conditions under which each possibility emerges and comparative statics wihin each regime

Topics: HC Economic History and Conditions
Publisher: Centre de Recerca en Economia Internacional
Year: 2010
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Provided by: LSE Research Online
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