Bounded Leviathan: or why North and Weingast are only right on the right half Report as inadecuate

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‘Constitutions and Commitments- has inspired the economic literature on the importance of -Legal origins- LaPorta et al., 1998, 2008, which vindicates the notion that post-Glorious Revolution English institutions were particularly conducive to economic growth. More recently economists have acknowledged that growth in fact depends on -state capacity-. This encompasses not only investor protection legal capacity but also the ability of the state to finance itself -fiscal capacity-.Besley and Persson, 2009, 2010 show that the protection of private property rights and that of public property rights to taxation are linked and most likely co-evolutionary. However, the precise relation between the two is anything but clear. This paper argues that North and Weingast’s model’s one-sided focus on state coercion that threatened subjects’ property rights has obscured the relation between coercion used in revenue collection and total revenue role of fiscal capacity. We suggest a very simple model to show that this relationship between state fiscal capacity and legal capacity is not linear, especially in the phase of nation state building. The case of Spain provides empirical evidence for the existence of states were an increase in coercion would have improved fiscal capacity, but high levels of legal capacity paradoxically prevented the ruler from adopting this path. We use financial market developments to show the serious welfare implications that resulted from such a lack of coordination and integration.

Item Type: MPRA Paper -

Original Title: Bounded Leviathan: or why North and Weingast are only right on the right half-

Language: English-

Keywords: -Constitution and Commitment-; -legal origins-; -state capacity-; -fiscal capacity-

Subjects: E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the MacroeconomyK - Law and Economics > K0 - GeneralN - Economic History > N0 - GeneralE - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the MacroeconomyE - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General OutlookP - Economic Systems > P4 - Other Economic Systems > P48 - Political Economy ; Legal Institutions ; Property Rights ; Natural Resources ; Energy ; Environment ; Regional Studies-

Author: Irigoin, A


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