Taxation, Fiscal Capacity, and Credible Commitment in Eighteenth‐Century China: The Effects of the Formalization and Centralization of Informal Surtaxes

26 Pages Posted: 20 Oct 2020

See all articles by Yu Hao

Yu Hao

Peking University - School of Economics

Kevin Zhengcheng Liu

affiliation not provided to SSRN

Date Written: November 2020

Abstract

This article explores a tax reform in eighteenth‐century China that formalized county‐level informal surtaxes and centralized control over them in the hands of provincial governors, in an effort to strengthen provincial fiscal capacity. The findings show that this reform increased the frequency of famine relief in cases of exceptional disaster relative to other weather conditions. The study shows that the effects were driven by the new fiscal revenues—public funds—at the governors’ discretion, not by the central government's relief actions, bureaucratic control over lower officials, or other concurrent fiscal reforms. Moreover, the reform facilitated intertemporal smoothing and inter‐regional risk sharing. However, the effects declined as soon as the central government broke its promise and began to appropriate provincial fiscal revenues. These findings not only provide evidence that fiscal centralization could enhance the provision of public goods in a premodern context, but also highlight that it was the lack of a credible commitment by the central government to the provincial governments that accounted for the short‐lived effects of the reform.

Suggested Citation

Hao, Yu and Liu, Kevin Zhengcheng, Taxation, Fiscal Capacity, and Credible Commitment in Eighteenth‐Century China: The Effects of the Formalization and Centralization of Informal Surtaxes (November 2020). The Economic History Review, Vol. 73, Issue 4, pp. 914-939, 2020, Available at SSRN: https://ssrn.com/abstract=3712333 or http://dx.doi.org/10.1111/ehr.12965

Yu Hao (Contact Author)

Peking University - School of Economics ( email )

Beijing
China

Kevin Zhengcheng Liu

affiliation not provided to SSRN

No Address Available

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