Military Rivalries, Alliances and Taxation : The International Origins of Modern Fiscal Contracts

Bellicist theories of comparative development predict increases in taxation as the result of military rivalries. Others claim that this causal relationship is contingent on particular geographical, institutional, and historical conditions. In this paper, we explore the conditional effects of military rivalries on taxation during the 19th and 20th centuries using time-series cross-section models. We hypothesize that international norms of territoriality, inter-state military alliances, and regime type will condition the direction and magnitude of the effect of rivalries on taxation. Our models suggest that from 1815 to 1945 the effects of rivalry on taxation were insignificant independently of these systemic, dyadic, and institutional factors. However, after 1945 when norms of territorial integrity consolidated, democracies with strong military allies responded to military pressures by lowering taxes in the short-term, reoriented public expenditures towards social spending, and ultimately increased taxes in the long run through a reconfiguration of the fiscal contract. Conversely, autocracies with strong allies responded to military pressures by increasing taxes in the short-term, capturing as much wealth as possible but failing to consolidate durable fiscal institutions