The Paradox of Power: Principal-Agent Problems and Fiscal Capacity in Absolutist Regimes

47 Pages Posted: 13 Mar 2017 Last revised: 8 Nov 2017

See all articles by Debin Ma

Debin Ma

London School of Economics & Political Science (LSE) - Department of Economic History

Jared Rubin

Chapman University - The George L. Argyros School of Business & Economics

Date Written: November 7, 2017

Abstract

Tax extraction is often low in absolutist regimes. Why are absolutists unable to convert power into revenue? Supported by evidence from Imperial China, we explain this puzzle with a principal-agent model which reveals that absolutists, unconstrained by rule of law and unable to commit to not predating on their tax-collecting agents (and the masses), may find it optimal to settle for a low wage-low tax equilibrium, while permitting agents to keep extra, unmonitored taxes. Our analysis suggests that low investment in administrative capacity is a conscious choice for an absolutist since it substitutes for credible commitment to refrain from confiscation.

Keywords: administrative capacity, fiscal capacity, state capacity, principal-agent problem, monitoring, credible commitment, absolutism, limited government, taxation, China, Europe, Qing Empire

JEL Classification: N45, N43, H20, P48, P51

Suggested Citation

Ma, Debin and Rubin, Jared, The Paradox of Power: Principal-Agent Problems and Fiscal Capacity in Absolutist Regimes (November 7, 2017). Available at SSRN: https://ssrn.com/abstract=2931096 or http://dx.doi.org/10.2139/ssrn.2931096

Debin Ma

London School of Economics & Political Science (LSE) - Department of Economic History ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Jared Rubin (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

One University Drive
Orange, CA 92866
United States

HOME PAGE: http://www.jaredcrubin.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
156
Abstract Views
1,156
rank
225,884
PlumX Metrics