Econometrica: Jul, 2020, Volume 88, Issue 4

State Capacity, Reciprocity, and the Social Contract

https://doi.org/10.3982/ECTA16863
p. 1307-1335

Timothy Besley

This paper explores the role of civic culture in expanding fiscal capacity by developing a model based on reciprocal obligations: citizens pay their taxes and the state provides public goods. Civic culture evolves over time according to the relative payoff of civic‐minded and materialist citizens. A strong civic culture manifests itself as high tax revenues sustained by high levels of voluntary tax compliance and provision of public goods. This captures the idea of government as a reciprocal social contract between the state and its citizens. The paper highlights the role of political institutions and common interests in the emergence of civic culture.