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Hollowing out the State: Franchise Expansion and Fiscal Capacity in Colonial India∗
Pavithra Suryanarayan, Johns Hopkins University†‡
Studies of fiscal capacity have emphasized slow-moving structural and historical factors to explain variations in tax institutions. The cooperation of political elites, however, is crucial for building and maintaining robust tax institutions. This paper argues that political elites may weaken fiscal capacity in anticipation of new groups coming to power. One such instance occurred in the Colonial Indian provinces, where incumbent political elites hollowed out tax capacity in anticipation of franchise expansion. Why did this happen? In societies with hierarchical social orders, such as the caste system in India, incumbent elites are able to use the threat of de-segregation and a social-status cleavage to form anti-tax coalitions. Using a historical dataset from 1914-1925 and novel micro-level measures of land tax collection, tax avoidance, and the size of the bureaucracy, the paper demonstrates that fiscal capacity declined after franchise expansion in the districts with higher levels of inter-caste status inequality.
∗I thank Carles Boix, Alberto Diaz-Cayeros, Alexandra Cirone, Pradeep Chhibber, Albert Fang, John Huber, Francesca Refsum Jensenius, David Laitin, Horatio Larreguy, Isabela Mares, Maria Victoria Murillo, Phil Oldenburg, Pierce O’Reilly, Pablo Querubin, Maria Paula Saffon, Ganesh Srivats, Steven Wilkinson, Daniel Ziblatt and the seminar participants of the Historical Working Group at Yale University, Comparative Politics Seminar at Columbia University and the Workshop on Fiscal Capacity at Peking University for their feedback on earlier drafts of this paper. †Email: firstname.lastname@example.org, Phone: 9174994249 ‡Address: School of Advanced International Studies (SAIS) 1717 Massachusetts Ave. NW BOB - 740a
Washington D.C. - 20036
Fiscal capacity – the bureaucratic ability of the state to extract taxes – is a key dimension
of state capacity, and an important determinant of economic development and public
goods delivery. Effective taxation requires a sophisticated infrastructure that can identify
tax-payers and “shake them down”. Scholars have argued that factors that contribute to
good capacity are typically macro-historical in nature, such as war-making and colonialism
(Tilly 1992, Centeno 1997, Herbst 2000, Engerman and Sokollof 2005), in part because
ramping up capacity in the short-run is hard (Soifer 2013). An understudied factor is the
role of elite cooperation in building robust tax institutions (Besley and Persson 2011).
This paper argues that incumbent political elites may respond to the rise of
new groups to power by limiting the ability of the state to tax citizens in the future.
Critically, incumbent elites possess an advantage in the understanding of how complex
institutions of taxation function and have the ability to manipulate these institutions. They
can “hollow-out” tax institutions in several ways including by reducing the numbers of
bureaucrats involved in the process of identifying tax payers and enforcing tax laws, by
enacting legislation that can limit the power of the bureaucracy to undertake tax related
record keeping, and through lax enforcement at points in time when their control of the
state is challenged. Consequently, newly ascendant groups that come to power have at
their disposal a considerably weakened tax infrastructure.
When is such a strategy of fiscal weakening likely to be successful? Wealthy elites
may be able to weaken and reduce the size of the tax bureaucracy in places where they
can create coalitions in favor of such a strategy. This paper examines one cleavage
that elites can use to build such a coalition – social status. Status distinctions between
groups arise in societies with hierarchical social orders. We observe persistent social-status
distinctions between groups in a number of countries with a history of slavery, aristocracy,
colonialism, and the caste-system. Of central importance to “high-status” groups is their
rank in the social hierarchy which they preserve and perpetuate through their control of
segregated institutions. When low-status groups make claims on institutions, high-status
groups experience both a psychological threat to their dominance in the social order, and
a material threat to benefits from segregated institutions that were critical to maintaining
status distinctions in the first place. Consequently, elites from high-status social groups can
create coalitions in favor of weakening the fiscal bureaucracy in order to limit the size of
the state under the control of newly empowered low-status groups.
Recent work on the emergence and persistence of corrupt bureaucracies argues that
wealthy elites might expand bureaucracies in anticipation of franchise in order to create
a basis for patronage, and to create inefficiencies in tax collection (Acemoglu, Vindigni,
and Ticchi 2011). The authors theorize that elites are more likely to do so in contexts of
high economic inequality, particularly land inequality. Separately, studies of ethnic politics
have focused on both the usefulness of the bureaucracy for patronage, and emphasized
the effects of inter-group economic inequality on weak public good provision (Horowitz
1985, Chandra 2004, Baldwin and Huber 2010, Alesina, Michalopoulos, and Papaioannou
While these studies emphasize the centrality of ethnic or economic differences
between groups in explaining variations in the size of bureaucracy or the quality of public
goods, this paper argues that it is social-status distinction between groups that is salient to
building shared fiscal institutions. While economic and ethnic groups might have different
preferences for targeted public spending and might seek to capture the bureaucracy to
their advantage, it is high-status groups who resist the prospect of desegregated public
goods, which makes both their wealthy and poor members uniquely open to appeals by
elites to weaken tax institutions.
I examine the effects of an episode of limited franchise expansion on fiscal capacity
in 43 districts in two colonial Indian provinces, the Bombay and Madras presidency,
between 1914-1925.1 In August 1917, the Secretary of State of India, Edwin Montagu,
1Following independence the two provinces split into multiple states and account for roughly 250 million Indian citizens today. The Bombay Presidency split into Maharashtra, Gujarat and parts of Karnataka and
made an announcement in the English House of Commons that the Crown would
undertake political reforms in the colonial Indian provinces resulting in the first episode
of limited franchise expansion in 1920.2 While Indians had made increasingly strident
demands for greater representation in the colonial-era governments starting the previous
decade, the announcement in 1917 to enact the reforms came suddenly and as a surprise
to both provincial British officials and Indians (Irshick 1969). This paper takes advantage
of the surprise element of the announcement to examine attempts by groups in power in
the British bureaucracy to weaken taxation after 1917, three years prior to the election of
the first reforms councils in 1920.
I examine the effects of the size and status of one particular group in Colonial India
– Brahmans. The caste system prevalent in India at the time of the first franchise was a
system of hierarchical social stratification characterized by caste segregation and which
endowed brahmans a dominant position in society. Importantly, while the brahmans in
this period were of a high-status caste, they were not the wealthiest castes.3 In fact, the
newly enfranchised land-owning and capitalist non-brahman castes were wealthier than
brahmans in this period but had been largely excluded from positions in the state. Given
their relatively weaker class location compared to the non-brahmans, the support of both
wealthy and poor brahmans in this period for limiting government taxation provides a
stark illustration of the role the status cleavage in the calculations of this incumbent group.
Madhya Pradesh. The Madras Presidency split into Tamil Nadu, extensive parts of coastal Andhra Pradesh and smaller portions of Kerala, Karnataka and Orissa.
2The reforms expanded the franchise to a small segment of the Indian elite, introduced regular elections every 3 years in the British Indian provinces, delegated responsibility for taxation and public good provision to the elected legislators, and established a framework for federalism. In the words of the authors of the reforms act, the reforms announcement of 1917 was
“... to be the most momentous utterance ever made in India’s chequered history. They pledge the British Government in the clearest terms to the adoption of a new policy towards three hundred millions of people” (Report on Indian Constitutional Reforms, page 1, 1919).
3The 1911 census for instance finds that of the 114,470 adult Brahman males surveyed by the industrial census only 30,788 earned income from land in the Madras presidency. By contrast, dominant non-brahman castes such as Reddis, Kapus and Vellalas were the large