State capacity and public choice: a critical survey

Abstract

‘State capacity’ is a term associated with a popular argument in fiscal sociology, history, and political economy regarding the role of the state in the process of economic development. Much of the applied and theoretical work on state capacity already shows some influence from public choice theory, the application of the economic approach to the study of political processes. These commonalities notwithstanding, this paper argues that public choice theory can offer further insights into this literature. In particular, the public choice approach can help illuminate concepts such as those of ‘state capacity’ and ‘governance,’ which are often casually employed in the literature. It can also help us understand the interaction between state capacity and competitive pressures in the ‘market for governance’. Finally, insights from public choice can illuminate the causal nexus between investment in state capacity and economic development.