Bargaining over State Building in the Shadow of War

• In Event: Historical Political Economy of the Middle East

Abstract

Does war always make the state? The bellicist theory of state formation posits that external conflict promotes state development. However, this argument often overlooks the complexities of elite bargaining required to finance the state. We present a game-theoretic model that examines how external conflict alters bargaining over fiscal control between a central state and a peripheral elite. War pressure favors the state's bargaining power, which supports the state's fiscal control and increases its centralized fiscal capacity. However, there is an inverted U-shaped relationship between war pressure and state control. Wars help increase fiscal capacity up to a threshold, but conflicts that are too intense undermine capacity. This is due to the unwillingness to invest in probable losing causes, the relative insulation of local elites from conflict, and diminishing returns to war investments. We also uncover a low-capacity trap in which the state is willing to forgo future capacity in order to finance war in the present. We examine the implications of the model with historical cross-country and within-country fiscal revenue data from Europe, as well as a qualitative case study of the Ottoman Empire, and find supportive evidence.

Authors

• Daniel A N Goldstein, University of Oslo

• Yusuf Magiya, New York University Abu Dhabi