Disparate geography and the origins of tax capacity

  • Pablo Beramendi
  • Melissa RogersEmail author


We establish a conceptual and empirical link between the geographic distribution of economic endowments within a nation and long-run fiscal capacity. Economic geography informs elites’ incentives to facilitate large-scale central taxing bureaucracies. Sectoral economic advantage also provides them with leverage to transform these state-building incentives into policy and stable institutional equilibria. We argue that unequal economic endowments across the geography of a nation exacerbate distributive tensions. Political disagreement over the size and the scope of the state hinder centralized investments in state capacity to collect taxes. Using detailed sub-national data and indicators of geographic distribution, we demonstrate global patterns of sub-national economic geography, and how these patterns are related to sub-national variation in economic productivity. We show that divergence in sub-national economies varies across the world and is related to predictable differences in the size of the fiscal state.


Economic geography Taxation Spatial inequality Political economy State capacity 

JEL Classification

R12 H2 H73 N40 N90 



The authors thank Axel Dreher, Guy Whitten, Florian Hollenbach, Didac Queralt, Carles Boix, and participants in the Texas A&M University “Taxation, Revenue, and Fiscal Capacity” Conference (March 2017) for helpful comments on earlier versions of this article. Pablo Beramendi acknowledges support by the National Research Foundation of Korea (NRF-2017S1A3A2066657. The authors thank Kristoffer Wikstrom for top-quality research assistance.

Supplementary material

11558_2018_9319_MOESM1_ESM.pdf (1.9 mb)
(PDF 1.89 MB) (12 kb)
(DO 12.1 KB)
11558_2018_9319_MOESM3_ESM.dta (471 kb)
(DTA 471 KB)
11558_2018_9319_MOESM4_ESM.dta (81 kb)
(DTA 80.8 KB)


  1. Abdi, H., & Williams, L.J. (2010). Principal component analysis. Wiley interdisciplinary reviews: computational statistics, 2(4), 433–459.CrossRefGoogle Scholar
  2. Acemoglu, D., & Johnson, S. (2007). Disease and development: the effect of life expectancy on economic growth. Journal of Political Economy, 115(6), 925–985.CrossRefGoogle Scholar
  3. Acemoglu, D., Ticchi, D., Vindigni, A. (2011). Emergence and persistence of inefficient states. Journal of the European Economic Association, 9(2), 177–208.CrossRefGoogle Scholar
  4. Alesina, A., Devleeschauwer, A., Easterly, W., Kurlat, S., Wacziarg, R. (2003). Fractionalization. Journal of Economic growth, 8(2), 155–194.CrossRefGoogle Scholar
  5. Alesina, A., Perotti, R., Spolaore, E. (1995). Together or separately? issues on the costs and benefits of political and fiscal unions. European Economic Review, 39(3), 751–758.CrossRefGoogle Scholar
  6. Alesina, A., & Spolaore, E. (2005). The size of nations. Cambridge: Mit Press.Google Scholar
  7. Baer, W. (1972). Import substitution and industrialization in latin america: experiences and interpretations. Latin American Research Review, 7(1), 95–122.Google Scholar
  8. Barro, R.J., & Sala-i Martin, X. (1992). Convergence. Journal of Political Economy, 100(2), 223–251.CrossRefGoogle Scholar
  9. Baunsgaard, T., & Keen, M. (2010). Tax revenue and (or?) trade liberalization. Journal of Public Economics, 94(9), 563–577.CrossRefGoogle Scholar
  10. Beramendi, P. (2012). The political geography of inequality: regions and redistribution. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  11. Beramendi, P., Dincecco, M., Rogers, M. (2019). Intra-elite competition and long-run fiscal development. Journal of Politics.Google Scholar
  12. Beramendi, P., Lee, D.W., Rogers, M., Wikstrom, K. (2018). Endogenous borders. Technical report.Google Scholar
  13. Besley, T., & Persson, T. (2013). Taxation and development. Handbook of Public Economics, 5, 51–107.CrossRefGoogle Scholar
  14. Bochsler, D. (2010). Measuring party nationalisation: A new gini-based indicator that corrects for the number of units. Electoral Studies, 29(1), 155–168.CrossRefGoogle Scholar
  15. Bolton, P., & Roland, G. (1997). The breakup of nations: a political economy analysis. The Quarterly Journal of Economics, 112(4), 1057–1090.CrossRefGoogle Scholar
  16. Brambor, T. (2017). Fiscal capacity and the enduring legacy of the first income tax law. Technical report.Google Scholar
  17. Brambor, T., & Lindvall, J. (2018). The ideology of heads of government, 1870–2012. European Political Science, 17(2), 211–222.CrossRefGoogle Scholar
  18. Congleton, R.D. (2010). Perfecting parliament: Constitutional reform, liberalism, and the rise of western democracy. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  19. Diamond, J.M. (1998). Guns, germs and steel: a short history of everybody for the last 13,000 years. New York: Random House.Google Scholar
  20. Dincecco, M. (2017). State Capacity and Economic Development. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  21. Feenstra, R.C., Inklaar, R., Timmer, M.P. (2015). The next generation of the penn world table. American Economic Review, 105(10), 3150–3182.CrossRefGoogle Scholar
  22. Gallup, J.L., Sachs, J.D., Mellinger, A.D. (1999). Geography and economic development. International regional science review, 22(2), 179–232.CrossRefGoogle Scholar
  23. Galor, O., Moav, O., Vollrath, D. (2009). Inequality in landownership, the emergence of human-capital promoting institutions, and the great divergence. The Review of economic studies, 76(1), 143– 179.CrossRefGoogle Scholar
  24. Gennaioli, N., La Porta, R., De Silanes, F.L., Shleifer, A. (2014). Growth in regions. Journal of Economic growth, 19(3), 259–309.CrossRefGoogle Scholar
  25. Giuranno, M.G. (2009). Regional income disparity and the size of the public sector. Journal of Public Economic Theory, 11(5), 697–719.CrossRefGoogle Scholar
  26. Haber, S. (2005). Development strategy or endogenous processthe industrialization of latin america. Technical report, Stanford University.Google Scholar
  27. Henderson, J.V., Squires, T., Storeygard, A., Weil, D. (2017). The global distribution of economic activity: nature, history, and the role of trade. The Quarterly Journal of Economics, 133(1), 357–406.CrossRefGoogle Scholar
  28. Henderson, V., Storeygard, A., Weil, D.N. (2011). A bright idea for measuring economic growth. American Economic Review, 101(3), 194–99.CrossRefGoogle Scholar
  29. Henisz, W.J. (2002). The political constraint index (polcon) dataset.Google Scholar
  30. Hollenbach, F.M., Wibbels, E., Michael, D.W. (2013). State building and the geography of governance: Evidence from satellites. Technical report.Google Scholar
  31. Korpi, W. (1983). The democratic class struggle. Evanston: Routledge.Google Scholar
  32. Krugman, P.R. (1991). Geography and trade. Cambridge: MIT press.Google Scholar
  33. Kurtz, M.J. (2013). Latin American state building in comparative perspective: Social foundations of institutional order. Cambridge: Cambridge University Press.Google Scholar
  34. Lee, D.W., & Rogers, M. (2017). Measuring geographic distribution for political research. Technical report.Google Scholar
  35. Lee, D.W., & Rogers, M. (2019). Inter-regional inequality and the dynamics of government spending. Journal of Politics.Google Scholar
  36. Lessmann, C. (2009). Fiscal decentralization and regional disparity: evidence from cross-section and panel data. Environment and Planning A, 41(10), 2455–2473.CrossRefGoogle Scholar
  37. Lessmann, C. (2012). Regional inequality and decentralization: an empirical analysis. Environment and Planning A, 44(6), 1363–1388.CrossRefGoogle Scholar
  38. Lindert, P.H. (2004). Growing public: Social spending and economic growth since the eighteenth century Vol. 1. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  39. Lizzeri, A., & Persico, N. (2004). Why did the elites extend the suffrage? democracy and the scope of government, with an application to britain’s “age of reform”. The Quarterly Journal of Economics, 119(2), 707–765.CrossRefGoogle Scholar
  40. Mahler, V.A. (2002). Exploring the subnational dimension of income inequality: An analysis of the relationship between inequality and electoral turnout in the developed countries. International Studies Quarterly, 46(1), 117–142.CrossRefGoogle Scholar
  41. Mares, I., & Queralt, D. (2015). The non-democratic origins of income taxation. Comparative Political Studies, 48(14), 1974–2009.CrossRefGoogle Scholar
  42. Marshall, M.G., & Jaggers, K. (2002). Polity iv project: Political regime characteristics and transitions, 1800-2002.Google Scholar
  43. Michalopoulos, S., & Papaioannou, E. (2013a). National institutions and subnational development in africa. The Quarterly Journal of Economics, 129(1), 151–213.Google Scholar
  44. Michalopoulos, S., & Papaioannou, E. (2013b). Pre-colonial ethnic institutions and contemporary african development. Econometrica, 81(1), 113–152.Google Scholar
  45. Moene, K.O., & Wallerstein, M. (2001). Inequality, social insurance, and redistribution. American Political Science Review, 95(4), 859–874.Google Scholar
  46. O’Donnell, G. (1993). On the state, democratization and some conceptual problems: A latin american view with glances at some postcommunist countries. World Development, 21(8), 1355–1369.CrossRefGoogle Scholar
  47. Pincus, S.C., & Robinson, J. (2011). What really happened during the glorious revolution? Technical report, National Bureau of Economic Research.Google Scholar
  48. Political Risk Services. (2004). International country risk guide.Google Scholar
  49. Prichard, W. (2016). Reassessing tax and development research: A new dataset, new findings, and lessons for research. World Development, 80, 48–60.CrossRefGoogle Scholar
  50. Queralt, D. (2015). From mercantilism to free trade: A history of fiscal capacity building. Quarterly Journal of Political Science, 10(2), 221–273.CrossRefGoogle Scholar
  51. Rehm, P. (2016). Risk inequality and welfare states: social policy preferences, development, and dynamics. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  52. Rodríguez-Pose, A., & Ezcurra, R. (2009). Does decentralization matter for regional disparities? A cross-country analysis. Journal of Economic Geography, 10 (5), 619–644.CrossRefGoogle Scholar
  53. Rodrik, D., Subramanian, A., Trebbi, F. (2004). Institutions rule: the primacy of institutions over geography and integration in economic development. Journal of Economic Growth, 9(2), 131–165.CrossRefGoogle Scholar
  54. Rogers, M.Z. (2015). The Politics of Place and the Limits of Redistribution. New York: Routledge.Google Scholar
  55. Rogowski, R. (1987). Political cleavages and changing exposure to trade. American Political Science Review, 81(4), 1121–1137.CrossRefGoogle Scholar
  56. Sachs, J.D. (2003). Institutions don’t rule: direct effects of geography on per capita income. Technical report, National Bureau of Economic Research.Google Scholar
  57. Sala-i Martin, X.X. (1996). The classical approach to convergence analysis. American Political Science Review, 106(437), 1019–036. Scholar
  58. Scheve, K., & Stasavage, D. (2010). The conscription of wealth: mass warfare and the demand for progressive taxation. International Organization, 64(04), 529–561.CrossRefGoogle Scholar
  59. Soifer, H.D., & Alvarez, A.M. (2017). Choosing units of analysis in subnational research: the modifiable areal unit problem and the study of local violence during civil war. Working paper.Google Scholar
  60. Sokoloff, K.L., & Engerman, S.L. (2000). History lessons: Institutions, factors endowments, and paths of development in the new world. The Journal of Economic Perspectives, 14(3), 217–232.CrossRefGoogle Scholar
  61. Staiger, D.O., & Stock, J.H. (1994). Instrumental variables regression with weak instruments.Google Scholar
  62. Strom, K.W., Gates, S., Graham, B.A., Strand, H. (2017). Inclusion, dispersion, and constraint: Powersharing in the world’s states, 1975–2010. British Journal of Political Science, 47(1), 165–185.CrossRefGoogle Scholar
  63. Tanzi, V. (2000). Taxation in latin america in the last decade. Center for Research on Economic Development and Policy Reform, Working Paper, 76, 1–38.Google Scholar
  64. The World Bank. (2018). World development indicators.Google Scholar
  65. Transparency International. (2010). Corruption perception index
  66. Wong, D. (2009). The modifiable areal unit problem. London: SAGE Publications.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Duke UniversityDurhamUSA
  2. 2.Claremont Graduate UniversityClaremontUSA

Personalised recommendations