The Taxing Challenges of the State: Unveiling the Role of Fiscal and Administrative Capacity in Development

Abstract The growing emphasis on nation-states and their pivotal role in economic development has emerged as a central theme in contemporary economic discourse. This review examines the concept of state capacity as discussed in the economic literature, focusing on its practical implications. While the definition of state capacity remains multifaceted, this analysis delves into its economic implications. We focus primarily on the literature surrounding fiscal capacity, exploring how a state’s ability to raise and manage revenue impacts economic development and other critical economic outcomes. This review aims to shed light on the crucial role of fiscal capacity in shaping economic performance, inspiring further research and policy development in this area. (JEL codes: D72, D73, D74, E62, H11, H20, H77, and H83)