Projects

Determinants of state capacity in developing economies

Objective

This project aims to improve the current understanding of the structural conditions that underlie state capacity. It has a twofold objective:
(i) assessing the importance of political economy explanations vis-à-vis geography and history, focusing on the role of political systems that impose constraints of the executive power;
(ii) using two new databases that allow us to ‘unpack’ the concept of state capacity, by looking at what determines its key aspects of fiscal and expenditure capacity.

Cases

This is a cross-national study, covering over 90 developing economies.

Research questions

1. What are the determinants of state capacity cross-nationally, as measured by the capacity of the state to tax and spend effectively?
2. How important are political economy explanations of state capacity, relative to geographical and historical factors?
3. To what extent does the structure of power in political systems (as measured by the restraints on executive power) matter in the formation of effective tax and expenditure capacity of the state?

Methods and research design

The hypotheses under scrutiny are long-term relationships and must be tested using cross-section methods. An important obstacle to overcome is that, similar to other areas of governance research, state capacity may well evolve endogenously with its determinants (e.g. political systems), making it hard to disentangle spurious correlation and causal effects when using Ordinary Least Squares methods. Identification issues, regarding the effect of constraints on the executive, will be addressed using the Instrumental Variables methods.
The other factor limiting empirical research is the shortage of suitable state capacity measures. This project, however, benefits from a new database of measures capturing several aspects of fiscal and expenditure capacity at cross-country level for over 90 developing economies. The PEFA (Public Expenditure and Financial Accountability) database provides a unique set of relevant indicators, coded on 1-4 scale. Similarly, the IPD (Institutional Profiles Database) provides useful variables for an even greater number of developing economies, although they do not have the same level of disaggregation as PEFA. The constraint on the executive assessment is available in the Polity IV Database, offering a unique and established source on this aspect of the political system. The remaining macroeconomic, historical and geographical variables are available through established international organisations and research centres.

How does this project fit within ESID’s research agenda?

This project falls under Programme 1 – Political settlement typologies.

Researchers:

Publications

Journal articles
Roberto Ricciuti, Antonio Savoia and Kunal Sen (2019). ‘How do political institutions affect fiscal capacity? Explaining taxation in developing economies‘. Journal of Institutional Economics 15(2): 351-380.
Hassan, M. and Nazneen, S. (2017). ‘Violence and the breakdown of the political settlement: an uncertain future for Bangladesh?‘ Conflict, Security & Development 17(3): 205-223.
ESID publications
Tania Masi, Antonio Savoia  and Kunal Sen (2018). ‘Is there a fiscal resource curse? Resource rents, fiscal capacity and political institutions‘. ESID Working Paper  96.
Roberto Ricciuti, Antonio Savoia and Kunal Sen (2016). ‘How do political institutions affect fiscal capacity? Explaining taxation in developing economies‘. ESID Working Paper 59.
Badru Bukenya and Pablo Yanguas (2013). ‘Building state capacity for inclusive development. The politics of public sector reform‘. ESID Working Paper 25.
Antonio Savoia and Kunal Sen (2012). ‘Measurement and evolution of state capacity: exploring a lesser known aspect of governance‘. ESID Working Paper 10.
Matthias vom Hau (2012). ‘State capacity and inclusive development: New challenges and directions‘. ESID Working Paper 2.
‘Why state capacity matters for the post-2015 development agenda and how we should measure it‘. ESID Briefing Paper 4.