Standardizing the Fiscal State: Cabal Tax Farming as an Intermediate Institution in Early-Modern England and France

Abstract

How did modern and centralized fiscal institutions emerge? We develop a model that explains (i) why pre-industrial states relied on private individuals to collect taxes; (ii) why after 1600 both England and France moved from competitive methods for collecting revenues to allocating the right to collect taxes to a small group of financiers-a intermediate institution that we call cabal tax farming--and (iii) why this centralization led to investments in fiscal capacity and increased fiscal standardization. We provide detailed historical evidence that supports our prediction that rulers abandoned the competitive allocation of tax rights in favor of cabal tax farming in order to gain access to inside credit and that this transition was accompanied by investments in standardization. Finally (iv) we show why this intermediate institution proved to be self-undermining in England where it was quickly replaced by direct collection, but lasted in France until the French Revolution.

From the Persecuting to the Protective State? Jewish Expulsions and Weather Shocks from 1100 to 1800

“…This factor was certainly an important one in explaining the expulsion of Jews from England in 1290 and Spain in 1492. 44 However, the increases in state capacity that occurred from 1600 onwards and which are documented by Bonney (1995); Dincecco (2009);Johnson and Koyama (2012b) led to the formation of states that were less vulnerable to unrest amongst either the populace or the elite, and better at reducing interfaith and inter-communal violence, all factors that led to fewer persecutions and expulsions. Popular antisemitism survived.…”

“…5 On the rise of strong fiscal states during the seventeenth century, see Tilly (1990) and Johnson and Koyama (2012b). For the effect of this on persecution of minority groups see Johnson and Koyama (2011) and Johnson and Koyama (2012a).…”

Preindustrial Cliometrics

“…One important factor was that the deadweight loss associated with taxation lessened even as the total tax burden increased. Johnson and Koyama () examine the strategies the rulers of England and France adopted to increase tax revenues and access to credit in the seventeenth century. We provide evidence that the increase in fiscal capacity was accompanied by investments in standardisation that had positive spillover effects on the growth potential of the English and French economies in the eighteenth century.…”