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Paying for the Liberal State: The Rise of Public Finance in Nineteenth-Century Europe

Author(s):Cardoso, José Luís
Lains, Pedro
Reviewer(s):Dincecco, Mark

Published by EH.NET (August 2010)

Jos? Lu?s Cardoso and Pedro Lains, editors, Paying for the Liberal State: The Rise of Public Finance in Nineteenth-Century Europe. Cambridge, UK: Cambridge University Press, 2010. xii + 310 pp. $85 (hardcover), ISBN: 978-0-521-51852-9.

Reviewed for EH.Net by Mark Dincecco, IMT Lucca Institute for Advanced Studies.


Paying for the Liberal State is a novel collection of case studies about the development of modern systems of public finance in core and peripheral European countries from the start of the nineteenth century to the eve of World War I. The work is edited by Jos? Lu?s Cardoso and Pedro Lains, both Research Professors at the Institute of Social Sciences at the University of Lisbon. The contributors are prominent scholars in European economic history.

By my count, Paying for the Liberal State makes three key contributions. Prior to its publication, there was no book-length investigation of the development of public finances in Europe after 1815. I view Paying for the Liberal State as a nineteenth-century counterpart to works on pre-modern public finances like The Rise of the Fiscal State in Europe, 1200-1815, edited by Richard Bonney (Oxford: Oxford University Press, 1999). With its focus on detailed case histories, Paying for the Liberal State also complements the cross-country, econometrics-oriented literature that covers the classic gold standard era from the 1870s to 1913. Finally, by providing a clear and accessible account of the evolution of public finances over the long run, Paying for the Liberal State will be of use to scholars in neighboring disciplines that study the interplay between politics and fiscal change. I describe other notable attributes of this book throughout my review.

The chapter ordering of Paying for the Liberal State runs according to relative fiscal sophistication. Britain represents the benchmark tax system. According to contributor Martin Daunton, the establishment of parliamentary budgetary control in 1688 was just one of many steps towards the creation of a fiscal regime that was truly legitimate in the eyes of taxpayers. Changes in tax composition, the extension of voter franchise, and instances of political leadership over the nineteenth century were also crucial elements to engender public trust.

Lack of legitimacy was one feature that distinguished the fiscal systems on the European continent from that of Britain. The chapter on the Netherlands by Jan Luiten van Zanden and Arthur van Riel draws heavily from their recent book (The Strictures of Inheritance: The Dutch Economy in the Nineteenth Century, Princeton: Princeton University Press, 2004). Van Zanden and van Riel provide a useful timeline of Continental political processes over the nineteenth century: the restoration of absolutist rulers after 1815, the transition to liberalism in the 1840s, and the extension of voting rights from the 1870s onwards. Their analysis of the failure of the ?enlightened? autocrat William I (reign, 1815-40) illustrates how transparency and political representation helped create a credible tax regime. Van Zanden and van Riel?s description of the importance of colonial possessions like Indonesia to the sustainability of Dutch finances is also of particular interest. The chapter on France by Bonney emphasizes two related factors that prevented nineteenth-century fiscal innovations. The longevity of an oligarchic social order, coupled with the broad failure of population growth, slowed the establishment of public trust in the French tax system.

The next chapters are dedicated to polities east of the Rhine River, where issues of state formation were crucial. The contribution by Mark Spoerer on Germany neatly describes the political geography of the German territories before unification in 1871. Spoerer concentrates on Prussia, the largest nineteenth-century state, and W?rttemberg, an example of the sort of impersonal tax systems that prevailed in the South. His discussion of tax competition and free-riding among pre-unitary polities should be of particular interest to political economists. The chapter on Italy by Giovanni Federico illustrates how the aggressive pre-unitary state of Piedmont made fiscal innovations to further its nationalistic ambitions. Federico also documents the continuity between Piedmontese tax institutions and those in the Kingdom of Italy, established in 1861, as well as the shortcomings of Piedmontese (and later, Italian) fiscal policies. The chapter on Austria-Hungary by Michael Pammer provides a lucid account of tax differences within the vast Empire. In contrast to Germany and Italy, Pammer?s work shows how fiscal problems can lead to the dissolution of states.

The remaining case studies are devoted to other aspects of the European experience. The chapter on Sweden by Lennart Sch?n highlights the unique features of its fiscal system. Peasants were represented in parliament since late medieval times and played an important role in Swedish politics, often forming alliances with the king against the nobility. The link between the traditional political power of the peasantry and the modern Swedish welfare state illustrates how history can influence current outcomes. Surprisingly, Swedish public finances relied upon archaic tax structures including payments in kind through most of the nineteenth century. The chapter on Spain by Francisco Com?n describes the interplay between politics and public finances in great detail. Negative political shocks including civil war repeatedly undermined efforts to enact fiscal reforms, no matter how important they may have been. The chapter on Portugal by Cardoso and Lains follows suit. Their take on the excruciating process of institutional change over the nineteenth century is sympathetic, as Portugal (like Spain) was ultimately able to establish modern fiscal structures.

The conclusion by Larry Neal employs comparative analysis to bring together the divergent case studies. Neal makes compelling use of Harley Hinrichs? classic model of tax transformation from traditional to modern economies (A General Theory of Tax Structure Change during Economic Development. Cambridge, MA: Harvard University Press, 1966). His contrast between Britain and the European continent is of particular interest. Drawing upon the carefully-established results from previous chapters, Neal argues that it was difficult to transfer British fiscal institutions abroad, though they were widely recognized as superior. This subtle point has implications for current policy debates: if Anglo tax structures were not easily replicated throughout Europe, with its shared history of economic and political traditions, then we might think that it will be even harder to export updated versions of them to the modern developing world, which has diverse historical legacies.

In total, Paying for the Liberal State is a valuable addition to the historical literature on European public finance. Jean-Laurent Rosenthal claims that the main policy problem for governments since 1800 has been to design and implement growth-enhancing fiscal strategies (Review of The British Industrial Revolution in Global Perspective, by Robert Allen. Journal of Economic History 70, no. 1 [2010]: 242-5). Through its detailed evaluation of the diverse ways in which nineteenth-century governments taxed, borrowed, and spent public funds, Paying for the Liberal State provides insights that help us to better understand this key challenge. By and large the book does not use the language or tools of modern political economics to frame its analysis. Now that a coherent set of case histories are in place, however, there is ample opportunity for enterprising research that builds upon the solid foundations that Paying for the Liberal State sets.


Mark Dincecco is Assistant Professor in the research area of Economics and Institutional Change at IMT Lucca Institute for Advanced Studies, located in Tuscany. His current manuscript, under contract with Cambridge University Press, examines political transformations and public finances in Europe from 1650 to 1913. Email:

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Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):Europe
Time Period(s):19th Century