Taxation with a Grain of Salt: The Long-Term Effect of Extractive Fiscal Institutions on Development

Abstract This paper exploits the historical system of salt taxation in France to study the impact of extractive taxes on long-term economic development. Salt tax rates exhibited significant spatial variation, leading to discontinuous jumps in salt prices. Adopting a spatial regressiondiscontinuity design, we estimate the causal effect of the tax using original historical data. We extract geo-localized individual-level information on almost 70 million individuals living near tax borders between 1400 and 1900. These exogenous rate differentials had large effects, as areas burdened by lower rates exhibit higher economic development. These effects emerged after the tax’s introduction and persisted post-abrogation to the present day.