Dummy Duration Severity Density of Main Stations Density of Employees Density of Annual Revenue 1854 1855 1858 1861 0 3000 6000 9000 12000 15000 18000 21000 24000 SCENARIO SETTING: Political Disorder and Fiscal Capacity with Evidence from Late Imperial China RESEARCH FOCUS: The Role of Taiping Rebellion in the Rise of the Indirect Taxation in Late Imperial China EMPIRICAL EVIDENCE: Cross Sectional Data and OLS estimates for 266 prefectures in China MECHANISMS AND IMPLICATIONS: More Identification Strategies and Discussions on Long-Term Economic Consequences The Making of a Modern Fiscal State Why the Chaotic 19 th -Century China? Taiping Rebellion (1851-1864) The largest internal war in Chinese history provinces occupied years for suppression casualties 12 14 70M silver taels of military spending 171M Hypothesis: There is a positive link between military conflicts during the Taiping Rebellion and the rise of local indirect taxation (lijin) as an autonomous fiscal resource that persisted locally in a long run. Mechanism The central government, given the scarce fiscal resource and the inability to suppress the rebels, had to delegate its power to local governments by encouraging their private militias. To finance the militias, local governments started levying commercial tax (lijin) from local trade; the lucrative taxation persisted even after the suppression of the Rebellion and made the local fiscal systems highly autonomous. Lijin Taxation i i i i Taiping Warfare = β 0 + β 1 + β 2 + ε Controls Controlling other factors that affected lijin taxation: geographical / demographic condition, pre-1850 fiscal condition, post-1850 shocks, etc. Key References 1. Using Panel Data for a Dif-in- Dif Specification 2. Linking Indirect Taxation to Local Industrialization with Taiping Warfare as an IV (1) Chen, F., 2015, 晚清财政说明书 (Compilation of Late Qing Financial Reports), Hubei People’s Press. (2) First Historical Archives of China (FHAC), 1996, 清政府镇压太平天国档案史料 (Archival Materials for the Suppression of the Taiping Rebellion by the Qing Government), Social Sciences Literature Press. (3) Guo, Y., 1989, 太平天国历史地图集 (The Atlas of the Taiping Rebellion), China Maps Press. (4) Liang, F., 1980, 中国历代户口、田地、田赋统计 (Statistics on Household, Land and Land Tax for China’s Dynasties), Shanghai People’s Press. (5) Luo, Y., 1936 (2010), 中国厘金史 (The History of Lijin in China), Commercial Press. Hanzhi DENG | [email protected] | Department of Economic History THE MERIT OF MISFORTUNE: TAIPING REBELLION AND THE RISE OF INDIRECT TAXATION IN MODERN CHINA, 1850S-1900S Radical Fiscal Transitions Reflected in Changing Government Revenue Structure Question: Besides international wars, what was the role of the domestic chaos in the Late Qing fiscal transitions? Taiping Warfare Lijin Taxation • Public Financial History: Schumpeter (1954), Dickson (1967), Ormrod et al. (1999), Bonney (1999) • New Institutionalist Economics: North and Weingast (1989), Fratianni and Spinelli (2006), Drelichman and Voth (2008), Dincecco (2009) • Historical Sociology: Brewer (1988), Tilly (1992), Downing (1992) 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 1652 1685 1724 1725 1753 1766 1812 1841 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 Why a Comparative Perspective? • Constructive but Controversial Elements of a Fiscal State: power consolidation, bureaucracy, monetarized taxation, indirect taxation, credit tools, etc. (Brewer, 1988; O’Brien and Hunt, 1999; Epstein, 2002) • Non-European Evidence in Various Historical Contexts: Gardner (2012), He (2013), Frankema and Van Waijenburg (2014), Ko et al. (2018) 10 3 silver taels 10 3 silver taels Land Tax Salt Tax Customs Tax Miscellaneous Taxes Land Tax Salt Tax Customs Tax Miscellaneous Taxes Commercial Tax (lijin) Cross Sectional Data for 266 prefectures Compiling information on Taiping battles and locating them to prefectures; evaluate the severity of the battles and give scores to them Three Measurements Dummy Duration Severity Compiling information about lijin stations, staffing and revenues from provincial financial reports of 1908 Fiscal Reorganization Campaign Three Measurements Main lijin Stations Lijin Employees Estimated Annual lijin Revenue (all weighted by land size) Empirical Strategy Why cross-sectional data? 1. Persistence of lijin taxation from 1860s to 1900s; 2. High data quality only for the 1908 surveys 10 3 silver taels Four Types of lijin taxes • Relevance: strong correlation between the Rebellion and the scale of the indirect taxation • Exclusive Restrictions: exogeneity of the Rebellion – no impact on local industrialization via other channels Density of Enterprises by 1910 -1.0 -0.5 0 0.5 1.0 1.5 -50 -25 0 25 50 75 -50 -25 0 25 50 75 Taiping Severity Coast Yangzi River Latitude Land Tax p.c. 1820 Domestic Custom Treaty Port Duration Natural Disaster Taiping Severity Coast Yangzi River Latitude Land Tax p.c. 1820 Domestic Custom Treaty Port Duration Natural Disaster Taiping Severity Coast Yangzi River Latitude Land Tax p.c. 1820 Domestic Custom Treaty Port Duration Natural Disaster Y = Density of Main Stations Y = Density of Employees Y = Density of Annual Revenue Y = Density of Main Stations X = Taiping Warfare Severity Scatter Plot without Controls Interpreting the Magnitude: Ceteris paribus extra 12-month Taiping battles led to 1.57 new main lijin stations, the effect of which equals that of a treaty port run for 24 years (given average prefectural land size 16,332 km 2 ).