The Rise of Fiscal Capacity

Abstract

This paper studies the role of fiscal capacity in European state consolidation. Our analysis is organized around novel data on the territories and cities of the Holy Roman Empire in the early modern era. Territories implementing an early fiscal reform were more likely to survive, increased in size, and achieved a more compact extent. We provide evidence for the causal interpretation of these results and show key mechanisms: revenues, military investments, and marriage success. The imposition of Imperial taxes, which increased the benefits of an efficient tax administration, exogenously drove the implementation of fiscal centralization, tilting the consolidating states toward absolutism.