The Political Economy of War Finance

What explains the variation in how states pay for war? Leaders must choose between four primary means of war finance: taxation, domestic debt, external extraction, and printing. Each alternative has different political and economic costs and benefits. Borrowing compounds the cost of war through high interest rates; printing can result in disastrous inflation; taxation combats high inflation and minimizes cost yet can be politically damaging; while garnering money from abroad invites outside influence and fosters dependency. Conventional wisdom suggests that regime type dictates war finance strategy. However, based on statistical analysis of a novel data set and in-depth case studies, I demonstrate that regime type plays at best only a small role in a state's war finance story. I argue that there are four primary influences shaping war finance outcome: support for the war effort, fear of inflation, bureaucratic capacity, and the ability to cope with a balance of payments problem. To test these hypotheses, my dissertation presents the results of the first large-scale statistical analysis of war finance. It utilizes an original data set on interstate war finance from 1823 to 2003. I augment my statistical analysis with six case studies, three paired comparisons. First, I compare the financing of the United States' war effort in the Korean and Vietnam Wars. I then compare the Russian and Japanese financing of the Russo