Industrialization, Representation, and Fiscal Development in Northern States

• In Event: New Perspectives on the Origins of State Building

Abstract

Political economy scholars have long emphasized the fundamental role of industrialization and the resulting interplay between declining rural elites and the emerging urban class in shaping trajectories of spending and taxation. Using both cross-national and within-country designs, prior research has found that urbanization augments the size of the state, increases fiscal decentralization, and raises the share of taxes shouldered by the rising urban sector. However, the factors that underlie elite strategic decisions regarding whether to invest in fiscal capacity, shift the tax burden, or opt for tax decentralization have received relatively limited exploration. We investigate this question using comprehensive American state- and county-level tax and public spending data from 1870 to 1910, a period marked by rapid industrialization. We argue that the strategies chosen by elites to fund essential public goods and manage tax burdens were contingent on the pace of industrialization and the degree to which rural elites could shape political institutions in each state. The late 19th and early 20th-century American states exhibit substantial variation across economic dimensions, which can help us shed light on a variety of debates about American political economic development, including longstanding debates about “stateness”. Just as importantly, this period featured several changes to the rules governing the allocation of political power across states, often in favor of rural constituencies, which influenced the extent to which state taxes could be shifted to urban areas. Therefore, this setting provides an exceptional opportunity to explore and evaluate various competing hypotheses within the comparative political economy literature regarding the determinants of taxation and public spending.

Authors

• Jeffrey Louis Jensen, New York University-Abu Dhabi

• Giuliana Pardelli, New York University Abu Dhabi

• Jeffrey Timmons, NYU Abu Dhabi