Warfare, Fiscal Gridlock, and State Formation During Europe’s Military Revolution

We introduce a political scope condition for the classic argument that war motivates expansions in the state’s fiscal capacity. All major medieval European monarchies separated the power to tax from the power to spend. We argue that this fiscal separation of powers engendered gridlock, which became increasingly intolerable after 1500 due to the military revolution and the greater role of money in battlefield victory. European states thus reformed toward one of two stable equilibria – fiscal absolutism or parliamentarism. Elsewhere in Eurasia, states were already fiscally absolutist, and thus war pressures did not provoke similar reform efforts. Exploiting new panel data on 101 European territorial units, we document how external war pressures promoted reforms in a majority of units toward fiscal absolutism (which took a distinctive decentralized form), with a minority of units adopting fiscal parliamentarism (either centralized or decentralized), and peripheral units retaining fiscal separations of power (and hence gridlock).