The Rise of Fiscal Capacity Davide Cantoni Cathrin Mohr Matthias Weigand* July 2021 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 strengthened ruler’s positions and sidelined Estates, exogenously drove the implementation of fiscal centralization, tilting the con- solidating states toward absolutism. Keywords: Fiscal capacity, state competition, war, Germany JEL Classification: H20, N33, N43, P16 *Cantoni: Ludwig-Maximilians-Universitat¨ Munich, CEPR, and CESifo. Email:
[email protected]. Mohr: Universitat¨ Bonn. Email:
[email protected]. Weigand: Harvard University. Email:
[email protected]. Helpful and much appreciated suggestions, critiques and encouragement were provided by Mathias Buhler,¨ Mark Dincecco, David Schonholzer,¨ Jesse Shapiro, Joachim Voth, Jonathan Weigel, and Noam Yuchtman as well as seminar and conference participants in Berkeley, Frankfurt (Max Planck Institute), Harvard, Milan (Universita` Cattolica), Oxford, and Tel Aviv. Refer to data documentations for additional acknowledgments. Financial support from the Munich Graduate School of Economics, the Egon Sohmen Foundation, and from the Deutsche Forschungsgemeinschaft through CRC-TRR 190 is gratefully acknowledged. 1 Introduction Exiting the Middle Ages, Europe was divided into hundreds of territories with limited and un- certain extent of their monopoly of power, overlapping and competing jurisdictions, and complex feudal arrangements.