Warfare, Taxation, and Political Change: Evidence from the Italian Risorgimento

Abstract

We examine the relationships between warfare, taxation, and political change in the context of the political unification of the Italian peninsula. Using a comprehensive new database, we argue that external and internal threat environments had significant implications for the demand for military strength, which in turn had important ramifications for fiscal policy and the likelihood of constitutional reform and related improvements in the provision of nonmilitary public services. Our analytic narrative complements recent theoretical and econometric works about state capacity. By emphasizing public finances, we also uncover novel insights about the forces underlying state formation in Italy. "The budget is the skeleton of the state, stripped of any misleading ideologies."Sociologist Rudolf Goldscheid, 1926 1 ublic finances are the sinews of state power. A growing theoretical literature examines the interplay between wars, fiscal policy, and economic development. 2This literature takes inspiration from historical works that investigate the relationship between external conflicts and fiscal innovations that enabled states to gather greater wartime funds.

The Democratic Window of Opportunity

“…34 It is also possible, as suggested in Aidt and Albornoz (2011), that foreign governments might induce or encourage regime transitions in the wake of adverse economic shocks. 35 The drawback of this strategy is that it is only credible when the "threat of revolution"is perceived to be real. For this reason, it is often insu¢ cient to avoid a regime challenge, and the incumbent must then resort to either democratic reform or repression.…”

“…34 For example, they may invest in repression or o¤er temporary transfers to those who pose a threat to their rule, thus eliminating their incentive to participate in a revolt. 35 In our setting, food subsidies could be used to mitigate the incentive to riot in the face of a drought, while international food aid could unintentionally serve the same function. It is not possible for us to control for these alternative strategies, and so they remain as potential sources of statistical bias in the estimation of in equation (1).…”

Warfare, fiscal capacity, and performance

“…When new executives inherit strong fiscal institutions, they may wish to exploit them for their own purposes rather than cede authority back to traditional elites. On the Italian Peninsula after 1815, for instance, Dincecco et al (2011) show that restored rulers retained the fiscal reforms first made by Napoleon, although they relinquished other ancient rights to local elites.…”

Does military pressure boost fiscal capacity? Evidence from late-modern military revolutions in Europe and North America

“…From a different empirical strategy, Besley and Persson (2009) and Dincecco and Prado (2012) argue that late-modern and early-modern wars are positively correlated with present fiscal capacity (measured, among other variables, by the average of the current share of taxes over GDP) in broad international datasets. Finally, Dincecco, Federico and Vindigni (2011) find a positive correlation between higher levels of military spending and taxation in the Italian states during the Risorgimento.…”