How War Broke Tax Gridlock and Reshaped Early Modern European States

🧭 The Puzzle: Tax Power Separated from Spending

Medieval European monarchies typically separated the power to tax from the power to spend. That institutional separation produced persistent fiscal gridlock. A political scope condition is introduced: war motivates fiscal expansion only when this separation creates a binding constraint that can be removed.

💣 Why 1500 Mattered: Money and the Military Revolution

The military revolution after 1500 raised the importance of money for battlefield success. As external war pressures increased, the fiscal gridlock generated by separate taxing and spending authorities became increasingly intolerable, creating strong incentives for institutional reform.

📊 How Reforms Were Tracked

• New panel data covering 101 European territorial units were used to trace institutional change over time.
• The analysis links episodes of external war pressure to subsequent reforms in fiscal institutions.
• Reforms are classified into stable equilibria: fiscal absolutism or fiscal parliamentarism, with persistent fiscal separations indicating continued gridlock.

🔍 Key Findings

• External war pressures prompted a majority of European units to move toward fiscal absolutism; this absolutism often took a distinctive decentralized form.
• A minority of units responded by adopting fiscal parliamentarism, which appeared in both centralized and decentralized variants.
• Peripheral units that retained the separation of taxing and spending powers continued to experience fiscal gridlock and thus did not undergo the same reform trajectories.
• By contrast, elsewhere in Eurasia many states were already fiscally absolutist, so similar wartime pressures did not provoke comparable institutional reforms.

⚖️ Why It Matters

These results refine the classic argument that war drives state fiscal capacity. The effect of war depends on preexisting political institutions—specifically, whether taxing and spending powers are separated. Where separation produced gridlock, war pushed states toward new stable institutional equilibria (absolute or parliamentary fiscal regimes); where absolutism already prevailed, war did not trigger the same reforms. This provides a conditional causal account of how military pressures shaped divergent European state-formation pathways.