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Essays on Fiscal Modernization, Labor Coercion, State Capacity and Trade

  • Hup, Mark
Publication Date
Jan 01, 2021
eScholarship - University of California
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This dissertation consists of three essays in economic history and political economy. Each essay uses newly-collected data from colonial Indonesian archival sources to empirically study historically widespread aspects of taxation that have largely, but not completely, disappeared in modern times. The first two essays study taxation in the form of coerced labor, a practice known as corvée labor. The third essay studies tax collection done by private parties, a practice known as tax farming. This dissertation aims to shed light on what drove these practices and thereby aid our understanding of fiscal modernization, which is thought to be critical for long-run economic development. The key question that runs as a thread through the dissertation is: How and why did modern money-based and centralized fiscal institutions emerge? The first essay is the first study to estimate the effect of state capacity expansion on corvée labor. To do so, I construct a new database covering eighteen Javanese provinces over thirty-two years (1874-1905) during the period of Dutch colonial rule. I document the importance of corvée labor and find that national-level policy centralized state finances by gradually replacing corvée with a monetary poll tax. At the same time, however, local state capacity expansion, primarily indigenous officials working as agents for the state, slowed the movement away from corvée. The relationship between state capacity expansion and fiscal modernization therefore depends on what part of the state is expanding. Opposing interests of different state actors can be key in understanding fiscal modernization and public labor coercion, so it is imperative to break open the black box of state capacity and analyze specific actors within the state. The second essay studies the impact of trade on corvée labor. To do so, I construct the first database on corvée labor usage and exports covering sixteen non-Javanese Indonesian provinces over forty-one years (1900-1940). I find trade expansions, especially of labor-intensive exports, reduce corvée usage. This effect runs through laborers buying themselves out of corvée duties. The fall in in-kind taxation is thus mirrored by a rise in monetary tax revenues. The opposite took place during the trade collapse of the Great Depression. The buy-out option enabled laborers to self-select out of corvée during trade booms, and into corvée during trade busts, without requiring stronger information-collection capabilities of the state. While some studies find a positive relationship between trade and private labor coercion, I argue public labor coercion follows a different logic due to the state's encompassing interest. The nature of the relationship between coercer and coerced is thus key in understanding labor coercion. The third essay examines the relationship between tax farming and state capacity. To do so, I expand the first essay's database with data on tax farm revenues and non-indigenous Asian officials. The results indicate that state capacity expansion was related to less reliance on tax farming and that different segments of the state bureaucracy had different relationships with tax farming. Officials from the group traditionally excluded from tax farming (the indigenous) are most strongly related to reduced reliance on tax farming. In contrast, officials from the group traditionally wooed as tax farmers (the non-indigenous Asians) are related to increased reliance. This provides evidence for centralized fiscal institutions emerging when the state becomes less dependent on divide-and-rule strategies that route revenue streams through politically weak groups and away from potentially politically powerful groups.

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