Tax Farming and State Capacity: Evidence from Colonial Indonesia

Replication package with dataset for the article Hup, Mark. "Tax Farming and State Capacity: Evidence from Colonial Indonesia." European Review of Economic History, n.d.<br><br>Abstract: How did centralized fiscal institutions emerge? This study investigates the relationship between state capacity and tax farming – tax collection by private actors – in colonial Indonesia. To do so, I construct a new database that covers the transition from tax farming to state-run tax collection. The results indicate that state capacity expansion reduced reliance on tax farming and that different segments of the state bureaucracy differentially impacted the tax farming transition. Officials from the majority group largely excluded from tax farming (i.e., the indigenous) strongly reduced reliance on tax farming. In contrast, officials from the minority group traditionally wooed as tax farmers (i.e., the non-indigenous Asians) did not reduce such reliance. The findings provide evidence for centralized fiscal institutions emerging when the state becomes less dependent on divide-and-rule strategies that route revenue streams through politically weak intermediaries.