Peer pressure: The puzzle of aristocrats’ tax compliance in early nineteenth-century Moscow

Abstract

How can developing countries successfully implement an income tax in the absence of a strong state? Recent theoretical research has suggested a possible solution: relying on voluntary compliance with tax demands can avoid the need for costly enforcement. This article provides empirical evidence for such a mechanism by investigating the introduction of the income tax in Russia in 1812. It uses a novel dataset to estimate the individual-level tax compliance of Russian nobles. The dataset is constructed from self-reported tax returns of all Russian aristocrats (around 4 000) who owned real estate in Moscow province. On the basis of both private narrative sources and state financial documents, findings show that the Russian nobility reliably declared their income: only 10 to 30 per cent of aristocrats evaded tax despite the limited legal repercussions of doing so. This surprisingly high level of tax compliance was achieved by the threat of public disclosure, whereby nobles had to declare their incomes to their peers. Nobles could face reputational risks from attempted evasion, particularly in the shadow of the looming Napoleonic invasion. Russia thus achieved its fiscal aims despite its low administrative capacity and without resorting to coercion.