Wars and the enforcement of revenue collection: theory and insights from Colonial Mexico∗

Historical evidence supports the observation that governments need not rely on centralized coercive enforcement to obtain resources and provide goods and services. By studying the fiscal history of colonial Mexico, this paper sheds light on why, if not by the threat of force, resources are transferred to the ruler, and provides an endogenous ex-planation for the evolution to states with the ability to collect revenue by means of a state administration with coercive enforcement and the creation of standing armies. The success of such a transition hinges on the perception of a threat of conflict. A game theoretical analysis shows that state-administered revenue collection based on coercive en-forcement allows contributors to commit to the financing of military forces, which otherwise would be under provided, if provided at all, due to the free rider problem in the financing of public goods. Thus, the analysis suggests that the mechanism used by the state to col-lect revenue is endogenous to the nature of the goods –public versus private – provided by the state. ∗I am indebted to Avner Greif for his guidance and constant encouragement. I speciall