How did modern and centralized fiscal institutions emerge? We develop a model that explains (i) why pre-industrial states relied on private individuals to collect taxes; (ii) why after 1600 both England and France moved from competitive methods for collecting revenues to allocating the right to collect taxes to a small group of financiers—an intermediate institution that we call cabal tax farming— and (iii) why this centralization led to investments in fiscal capacity and increased Fiscal standardization. We provide detailed historical evidence that supports our prediction that rulers abandoned the competitive allocation of tax rights in favor of cabal tax farming in order to gain access to inside credit, and that this transition was accompanied by investments in standardization. Finally (iv) we show why this intermediate institution proved to be self-undermining in England, where it was quickly replaced by direct collection, but lasted in France until the French Revolution.
You know something, whenever I hear people fulminating about bankers and credit and and and, I just feel sad. More life changes, more it remains the same. The situations we are going through has been seen before, quite a lot of times. People forget that once taxation goes through the roof, people do tend to revolt. Typically, its the rulers (governments in today’s parlance) who usually bugger up the economy and then go for the tax take to try to make up for those stupid policy decisions. But the British were better at this, one of the reasons why we are still celebrating the birth of Prince George while the French are, well, French.