War, International Finance, and Fiscal Capacity in the Long Run

Abstract

In this article I revisit the relationship between war and state making in modern times by focusing on two prominent types of war finance: taxes and foreign loans. Financing war with tax money enhances the capacity to assess wealth and monitor compliance, namely fiscal capacity. Tax-financed war facilitates the adoption of power-sharing institutions, which transform taxation into a non-zero-sum game, carrying on the effect of war in the long run. Financing war with external capital does not contribute to long-term fiscal capacity if borrowers interrupt debt service and, as part of the default settlement, war debt is condoned or exchanged for nontax revenue. The empirical evidence draws from war around the world as early as 1816. Results suggest that globalization of capital markets in the nineteenth century undermined the association between war, state making, and political reform.

The Board of Directors of a Bankrupt Company’s Civil Liability for Obtained Taxes

“…29 Whereas in facilitating the state's needs, taxes are also required to contribute to long-term fiscal capacity if borrowers interfere with debt payments and as part of the default settlement. 30 According to the author's research, the Directors of Sumber Urip Sejati Utama Ltd. abused their authority over the company when it declared bankruptcy. Sumber Urip Sejati Utama Ltd.'s Board of Directors also acted in bad faith, causing the state to suffer by issuing tax notes that did not correspond to actual transactions and notifications with fictitious substance.…”

Money Talks: Finance, War, and Great Power Politics in the Nineteenth Century

“…When exploring the role of economics in war, some have focused more on financial exchange, particularly on the relationship between sovereign credit and conflict. Credit is shown to be crucial for security issues, including fiscal capacity, outcomes of enduring rivalries, positions in global leadership, war outcomes, and crisis bargaining (Kinne and Bunte forthcoming; Queralt 2016; Rasler and Thompson 1983; Schultz and Weingast 2003; Shea 2014, 2016; Slantchev 2012; Zielinski 2016). Credit provides economic and political benefits to sovereigns, especially for wars.…”

Introduction to the Handbook on the Politics of Taxation

“…Whereas resource rents and foreign loans have often prevented rulers from engaging with their subjects (e.g. Centeno, 2002;Queralt, 2019), or undermined already existing representative institutions (Ross, 2015), taxation has regularly entailed requests for political participation and control from domestic taxpayers. To be sure, A bibliometric meta-analysis for "tax" and taxation" sorted by discipline 2 Handbook on the politics of taxation taxation without representation is far spread, but has also motivated protest and regime change across the world and in different time periods (see Andersson, this volume; Haldenwang, this volume).…”