Banking crises and the modern tax state

Abstract

Have banking crises boosted path-breaking fiscal innovations? Drawing on the literature that deals with the impact of warfare on fiscal capacity, I argue that banking crises have facilitated the rise of progressive tax instruments by causing revenue needs and demands for fiscal fairness. I test this argument by means of event history analyses and new worldwide data on the introduction of the two main pillars of the modern tax state: the personal income tax (PIT) and the general sales tax (GST). Furthermore, I examine the adoption of PIT in the USA and Argentina. The findings stress the importance of financial and economic crises for fiscal institutions and call for a closer investigation of how non-bellicist shocks have shaped the modern state.