Blessing in disguise: The persistent economic legacy of the grain tax of British Ceylon

Abstract Although much of the persistence literature has dealt with extractive colonial institutions, no study directly examines the persistent effects of the transition from pure subsistence to market economies as a result of such institutions. This article fills that gap by investigating the paddy commutation system of British Ceylon, which taxed native farmers in cash on the potential yield of their paddy lands. On the basis of a novel dataset on nineteenth‐century Ceylon and a two‐pronged identification strategy of neighbouring unit analysis and propensity score matching, I find that historical exposure to the paddy commutation system predicts higher wealth today. Advanced agricultural markets, higher land ownership, and an ethos of economic independence resulting from the commutation system appear to be the primary mechanisms driving these more favourable wealth outcomes.