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Another Divergence: Fiscal Centralization in Early Modern Europe paper presented at the Eight Conference of the European Historical Economics Society September, 4-5, 2009, Geneva by Kıvanç Karaman Department of Economics, Bogaziçi University, Istanbul [email protected] and Şevket Pamuk European Institute, London School of Economics and Political Science [email protected] Preliminary; please do not quote without the permision of the authors. 1 Introduction The early modern era witnessed the formation across Europe of a number of centralized states that captured increasing shares of their polities’ economic resources as taxes. Those states that were able to establish and implement a more efficient and centralized system of taxation not only benefited from greater capacity to deal with domestic challenges, they also enjoyed greater military success in the international arena. They were also able to shield their economies better from the large fiscal shocks created by the wars. This process was not universal, however. Not all states achieved fiscal centralization, and among those that did, its timing and extent varied significantly. As a result, there emerged, by the second half of the eighteenth century, glaring differences between the fiscal and military capacities of states that were able to collect more revenue and those that could not. 1 Tax collection in the early modern era was not at all easy. One can think of a variety of factors that affected central administrations’ capacity to collect taxes. Size and geography of the country certainly played an important role. In comparison to a large country with difficult terrain, it was a lot easier to collect taxes in a small or medium sized country with a relatively homogeneous terrain. In addition, the capacity to collect taxes increased in proportion to the degree of urbanization and the size of the urban economy. Similarly, the degree of monetization and market orientation had a significant impact on the ability to collect taxes even though some taxes could be collected in kind. Higher levels of income and per capita GDP also made it easier to collect more taxes, not only in absolute terms, but also as a percentage of per capita income. In other words, per capita tax revenues increased not only because per capita incomes increased, but more importantly because administrations achieved the capacity to extract greater shares of a polity’s income as taxes. 1 For two collections of case studies, R. Bonney (ed.), The Rise of the Fiscal State, 1200-1815, New York, Oxford University Press, 1999 and C. Storrs (ed.), The Fiscal-Military State in Eighteenth-Century Europe, Essays in honour of P.G.M. Dickson, Ashgate, 2009; also P. K. O’Brien and P. Hunt, “England, 1485-1815”, in Bonney, The Rise of the Fiscal State, 53-100 and S. R. Epstein, Freedom and Growth, The Rise of States and Markets in Europe, Routledge, London, 2000; for a recent study, see M. Dincecco,“Fiscal Centralization, Limited Government and Public Revenues in Europe, 1650-1913”, Journal of Economic History, March 2009, Vol. 69, No. 1, 48-103; a long standing classic on the subject is, C. Tilly, Coercion, Capital and European States, 990-1990, Oxford: Blackwell, 1990. 2 The growing extractive capacity of central administrations, in turn, relates to intra-state politics and the relationship between administrations and other stakeholders in taxation. Early modern states could not employ bureaucracies that functioned based on written regulations, evaluated on merit and enumerated with fixed wages. 2 Instead, in assessing, collecting and spending taxes administrations relied on a range of functionaries, officials, corporations, councils, assemblies and tax farmers. These intermediaries also took part in the military apparatus and were often major wealth holders in the polity. Due to their role in fiscal and military apparatus, the intermediaries influenced the size and incidence of the tax burden and captured a significant portion of tax revenue at the cost of the central treasury through temporary assignments, long term alienation or embezzlement. 3 Accordingly, there is a close relationship between levels of central revenue and the changes in the terms of intermediation. There is an extensive body of literature that identifies the introduction of credible constraints on executive authority as the critical juncture in domestic politics and fiscal consolidation. This argument holds that representative regimes were able to apply taxes to broader sections of the economy and collect more taxes because the representative bodies helped negotiate and sanction fiscal demands in return for limits on the power of the monarch on the use of funds, especially during periods of fiscal crises. In contrast, it has been argued, the power of the so-called absolutist states was not absolute at all. These regimes who retained the control of expenditure process struggled to collect taxes without such deals with local elites who controlled large segments of the economy and were able to limit the administration’s access to funds. 4 2 E. Kiser and J. Kane. 2001. "Revolution and State Structure: The Bureaucratization of Tax Administration in Early Modern England and France", American Journal of Sociology 107(1):183-223. 3 Bonney “Revenues” in Bonney ed. Economic Systems and State Finance, Oxford: Oxford University Press, 1995. 4 P. T. Hoffman and K. Norberg, “Conclusion”, in Hoffman and Norberg (eds.), Fiscal Crises, Liberty and Representative Government, 1450-1789, Stanford University Press, Stanford Calif., 1994, pp. 299-310; P. T. Hoffman and J. Rosenthal, “The Political Economy of Warfare and Taxation in Early Modern Europe: Historical Lessons for Economic Development”, in J. N. Drobak and J. V. C. Nye (eds.), The Frontiers of the New Institutional Economics, San Diego, Calif., 1997, 31-56; J. L. Van Zanden and M. Prak, “Towards and economic interpretation of citizenship: The Dutch Republic between medievaş communes and modern nation-states”, European Review of Economic History, 10, 111-45: and more recently, M. Dincecco,“Fiscal 3 In contrast, the literature on military revolution and fiscal military states emphasizes the role of changes in military technology and related organizational innovations in driving fiscal and coercive centralization. 5 While the relative importance and exact sequencing of the innovations is a matter of dispute, this literature has argued that improvements in firearms and artillery technologies as well as gains in discipline, drill, and tactical capacity of troops favored centralization of domestic violence and led to massive expansion of centrally administrated and provisioned infantry units at the cost of decentralized production of cavalry. The timing of the monopolization of violence lagged in Eastern Europe because until the modern era, cavalry was the only effective defense against recurring attacks of horse riding archers of the Central Asian steppe. 6 The process of monopolization of violence and centralization of finances were closely intervened because centrally administrated troops consume the bulk of the tax revenues and in turn proved instrumental in eliminating domestic fiscal and judicial fragmentation. Patterns of Fiscal Centralization in the Early Modern Era In this section we review the changes in the revenues of leading European states England, France, the Dutch Republic, Spain, Venice, Austria-Hungary, Prussia, Russia, Poland and the Ottoman Empire during the early modern era, from the early part of the sixteenth century until the end of the eighteenth century and then until World War I. For the purposes of our intertemporal and international analysis, we will first convert all monetary magnitudes into tons of silver by multiplying the magnitudes in current monetary units of accounts in each country with the silver content of the unit of account for that year. Centralization, Limited Government and Public Revenues in Europe, 1650-1913”, this Journal, March 2009, Vol. 69, No. 1, 48-103. 5 J. Brewer, The Sinews of Power, War, Money and the English State, 1688-1783, London, 1989; P. K. O’Brien and P. Hunt, “England, 1485-1815”, in R. Bonney (ed.) The Rise of the Fiscal State in Europe, c. 1200-1815, Oxford University Press, 1999, 53-100, and more recently C. Storrs (ed.), The Fiscal-Military State; also, Jan Glete “War And The State In Early Modern Europe: Spain, The Dutch Republic And Sweden As Fiscal-Military States, 1500-1660” and Richard Bean (1973), “War and the birth of the nation-state”. 6 Kenneth Warren Chase “Firearms: A Global History to 1700”, Azar gat,”War in Human Civilization”,parker “ Military Innovation and the Rise of the West 1500-1800”, Hoffman “Why Was It that Europeans Conquered the World?” 4 We will then calculate a number of indicators such as per capita tax revenues in grams of silver and ratio of per capita tax revenues to daily wages of construction workers. We have taken great care to apply similar definitions of revenue to all the states, but the limitations imposed by the variations in accounting procedures and fiscal structures should be kept in mind. Graphs 1 and 2 present total revenues of the leading European states during the early modern era. A number of interesting patterns emerge from these graphs. They make clear that revenues of most European states increased sharply during the seventeenth and especially the eighteenth centuries. Most striking in this respect were England and Holland but others including Austria and Russia also experienced significant increases in tax revenues. These large increases in revenues across Europe led to the emergence of large differences in state revenues between the Ottomans and most European states. These differences reached their peak, in most cases, during the second half of the eighteenth century when the revenues not only of the more successful and more powerful states in western Europe but also those in central and eastern Europe such as Austrian Monarchy and Russia. Table 1 Sizes of Armies and Navies of different Countries, 1550-1780 (in thousands) 1550 1700 1780 A N A N A N England France Dutch Republic Spain Austria Prussia Russia Ottoman Empire 41 43 25 14 145 9 18 0 100 50 76 224 90 37 62 37 52 140 115 118 86 26 0 0 0 30 79 183 27 64 253 181 408 140 109 85 22 62 0 0 19 30 Source: Data set prepared by Peter Brecke,, http://www.inta.gatech.edu/peter/power.html; for the Ottoman Empire, Rhoads Murphey, Ottoman Warfare, 1500-1780, UCL Press, London, 1999. As Table 1 makes clear, these increases translated into sharp increases in the size of the armies across Europe. This long term shift in the fiscal and military balance of power is consistent with what happened in the battlefield during the early modern era. 5 Decomposing the Emerging Differences in Total Revenues Equation 1A: Total Tax revenues in Tons of Silver = Total GDP in Tons of Silver * Tax Revenues as percent of GDP or Equation 1B: Total Tax revenues in Tons of Silver = Population * Real GDP per capita * Price Level in grams silver * Tax Revenues as percent of GDP It would be useful to briefly analyze further the causes of the emerging differences in tax revenues between the European states. As Equations 1A and 1B make clear, there were four basic causes of the emerging differences in tax revenues measured in tons of silver. One important cause was the large differences in population trends. Another cause for the emerging differences in total revenues in tons of silver was the changing price levels in terms of silver. During the early modern centuries price levels in northwestern and more generally western Europe, measured in silver terms increased much more as rising incomes and wages in this region which pulled up the prices of services and other non-tradable goods. There emerged as a result significant differences in the price level between western Europe and the rest of the continent. 7 With a higher price level in silver terms, states tended to collect more taxes measured in tons of silver. While there was a common market for mercenaries in Europe, it is reasonable to assume it still cost more in northwestern and more generally in Western Europe to buy the same basket of military goods including soldiers and equipment. In other words, this component of the growing difference in tax revenues did not necessarily translate into differences in military power. Equation 1B suggests another potential cause of the growing differences in revenues was the differences in GDP per capita. Per capita GDP and incomes were rising rapidly in England and the Dutch Republic during the seventeenth and eighteenth centuries. In contrast, however, per capita GDP in the rest of the continent did not show any strong trend during the early modern era, 7 Robert C. Allen, “The Great Divergence in European Wages and Prices from the Middle Ages to the First World War”, Explorations in Economic History, 38, 2001, pp. 411-47; Ozmucur and Pamuk, “Real Wages”, 2002. 6 rising to some extent in Western Europe but probably declining in southern Europe, especially in Italy. 8 The final cause of the emerging differences in revenues was the rapidly growing differences in tax revenues of the central administrations as a percent of GDP or total income. Our calculations, again subject to some degree of error due to the shortcomings of the existing GDP per capita estimates for the early modern era, suggest that share of tax revenues of the central administration as a percent of GDP or total incomes rose in most of the European countries from less than 5 percent in the sixteenth century to a range between 5 and 10 percent and in a small number of cases that include Britain and the Netherlands to more than 10 percent by the 1780s. 9 A more reliable way to measure the differences in the capacity of states to collect tax revenues or the tax burden of the population would be to compare the per capita tax revenues of the states with the daily wages of unskilled workers. Graph 3 makes clear the same ratio rose significantly in most European countries during the early modern era. Increases in the revenue over GDP ratios and in the revenues per capita over the daily wage ratios in many European countries despite the limited increases in per capita real GDPs during the early modern era suggest that the increases in the fiscal capabilities of centralized administrations preceded the rapid economic growth of the 19th century. It is also reasonable to assume that the gains in revenue over GDP ratios were primarily driven by centralization of taxes rather than increases in the tax burden per se. As a case in point, the 18th century increase in English revenue over GDP ratio occurred simultaneously with consolidation of around ninety percent of the gross tax revenue at the central treasury. Consolidation was achieved by the reforms after 1660, including unification of tax administration under Treasury Board, abolition of tax farming and 8 Based on Van Zanden, “Early Modern Economic Growth”; also Carlos Alvarez-Nogal and Leandro Prados de la Escosura, “The decline of Spain, 1500-1850, Conjectural estimates”, European Review of Economic History, Vol. 11, 2007, pp. 319-66; Angus Maddison, The World Economy, Historical Statistics, OECD Development Centre, Paris, 200xxx UPDATE ; admittedly these GDP per capita estimates are not precise but they give a reasonable good idea of the basic trends. 9 P. K. O’Brien and P. Hunt, “England, 1485-1815”, 53-100. 7 centralization of upkeep of armed forces. 10 To offer a contrast, in Ancien Regime France, it is estimated that only forty percent of the gross tax collection made it to the central treasury 11 . If it is indeed the centralization of fiscal administration that drove the gains in revenues, comparing the figures across polities should help identify underlying determinants. A visible pattern is that small, densely populated and urbanized polities, such as England, Venice and the Dutch Republic, had higher per capita revenues than large territorial states like the Ottomans. As distances from the capital cities increased, the logistics of transferring the tax extraction to the center and back became more difficult, and a larger share of the gross tax revenue was spent without entering the central coffers and budgets. In fact, in larger polities, the great share of the revenues were extracted from core provinces, such as Castile in Spain, pays d’Election in France, and Anatolia and Balkans in the Ottomans, and outer regions contributed smaller amounts sporadically. A survey of the polities also suggests territorial empires tended to have larger agrarian sectors which were harder to monitor and hence necessitated elaborate tax apparatuses with multiple layers of intermediation that resulted in lower net revenues to the center. Another determinant of an administration’s fiscal capacity was the size of money stock and degree of monetization. 12 Monetization was a necessary condition for centralizing finances, because it allowed transferring revenues to the political center, paying a standing central army or mercenaries in cash, investing in military technologies and training, and if necessary redistributing the funds around the country. Had it not been for a thirty-three-fold increase in the silver coinage in the Old World between 1500 and 1800, centralization of European fiscal systems might not have occurred. 13 Within Europe, there was a lag in increases in per capita money stock as one moved from west to east. In the Ottoman case, the trajectory of monetary system mimics that of the administration’s political fortunes. Ottoman money stock is estimated 10 ' O'Brien, Patrick and Hunt, Philip A (1999) “England, 1485-1815”, R. Bonney (ed), The rise of the fiscal state in Europe, pp. 54-5. John P. LeDonne, Absolutism and Ruling Class: The Formation of the Russian Political Order, 1700-1825. New York: Oxford University Press, 1991, p. 269 11 12 Tilly, Coercion, Capital and European States, pp. 88-89 13 Michael George Mulhall, The Dictionary of Statistics, Fourth Edition, 1903, pp. 306-10. 8 at 1000-1500 tons of silver at the end of 15th century. 14 France’s money stock at the same period was around 700 tons, implying a roughly similar per capita money stock. 15 Another major determinant of the fiscal capacity of the states was politics and the institutional framework that governed the relationship between the central administrations and tax intermediaries. One body of literature identifies the introduction of credible constraints on executive authority as the critical juncture in domestic politics and fiscal consolidation. This argument holds that representative regimes were able to apply taxes to broader sections of the economy and collect more taxes because the representative bodies helped negotiate and sanction fiscal demands in return for limits on the power of the monarch on the use of funds, especially during periods of fiscal crises. In contrast, it has been argued, that the absolutist regimes who retained the control of expenditure process struggled to collect taxes without such deals with local elites who were able to limit the administration’s access to funds. 16 In contrast, the literature on military revolution and fiscal military states emphasizes the role of changes in military technology and related organizational innovations in fiscal centralization. 17 While the relative importance and exact sequencing of the innovations is a matter of dispute, this literature has argued that improvements in firearms and artillery technologies as well as gains in discipline, drill, and tactical capacity of troops favored military and fiscal centralization and provisioned infantry units at the cost of decentralized production of cavalry. The timing of the monopolization of violence lagged in Eastern Europe because until the modern era, cavalry was the only effective defense against recurring attacks of horse riding archers of the Central Asian steppe. 18 The process of monopolization of violence and centralization of finances were closely 14 Pamuk, A Monetary History, pp. 51-2. Glassman, Debra and Redish, Angela (!985). “'New Estimates of the Money Stock in France, 1493-1680”. The Journal of Economic History XLV, pp. 31 - 46 15 16 Hoffman and Norberg (eds.), Fiscal Crises, Liberty and Representative Government, 14501789; Hoffman and Rosenthal, “The Political Economy of Warfare and Taxation in Early Modern Europe: Historical Lessons for Economic Development”. 17 Brewer, The Sinews of Power, War, Money and the English State, and Storrs (ed.), The FiscalMilitary State. 18 Kenneth Warren Chase “Firearms: A Global History to 1700”, Azar gat,”War in Human Civilization”,parker “ Military Innovation and the Rise of the West 1500-1800”, Hoffman “Why Was It that Europeans Conquered the World?” 9 intervened because centrally administrated troops consume the bulk of the tax revenues and in turn proved instrumental in eliminating domestic fiscal and judicial fragmentation. Trends in Fiscal Centralization During the Nineteenth Century Total and per capita revenues of most European states continued to rise both in grams of silver and in inflation adjusted terms during the nineteenth century. Not all of this increase was due to fiscal centralization, however. Most European countries experienced significantly higher rates of economic growth during the nineteenth century both in absolute terms and in comparison to the earlier period. The Angus Maddison series suggest that in most western and northwestern European countries real per capita GDP increased by more than 200 percent during the period 1820-1913. In many of these countries, per capita tax revenues rose more slowly than per capita income during the nineteenth century. In the countries of southern and eastern Europe, on the other hand, where it had been more limited before the nineteenth century, fiscal centralization as measured by tax revenues / GDP or per capita tax revenues / daily wage ratios rose and per capita revenues of the states rose faster than per capita incomes during the nineteenth century. (See Graphs 4 and 5) Bringing Asia In: A Larger Divergence On the basis of the available evidence from Iran, China and Japan, the pattern of fiscal centralization in Asia during the centuries up to World War I is consistent with what we have observed inside Europe. Per capita central revenues in Iran and China present were even lower than those of the Ottoman Empire during the early modern centuries. Moreover, fiscal centralization remained limited during the nineteenth century even after taking into account that the aggregate price levels in terms of silver was lower in east Asia. Not unexpectedly, Japan exhibits a somewhat different pattern, after low levels of central revenues during the early modern centuries, per capita revenues increases during the nineteenth century. However, even in the case of Japan both per capita revenues and the per capita revenues / daily wage ratio are quite low in comparison to those of western and central European countries during the nineteenth century. It would be interesting to incorporate the case of Mughal and colonial India into this comparison. 10 Investigating the Determinants of Central Tax Revenues In this section we present some very preliminary results of econometric analysis of the determinants of centralized revenue collection. To investigate the role played by different variables in the expansion of state revenues, we estimate the following regression equation: where , is the revenue for polity i’s central government at period t in tons of silver, , are respectively variables that measure socioeconomic, political and military factors for polity i at period t, and heteroskodasticty. in others. is the disturbance term that we allow to exhibit autocorrelation and are polity-specific fixed effects in some specifications and random effects are 50-year dummies. We only include European polities and the Ottomans in the regression since at the current stage we lack the data for one or more of the regressors for the other polities. We present regression results for 16th-18th century and 16th-19th century separately to address the concern that the political, economic and technological changes in the 19th century fundamentally altered the nature of state. Table 2 on the next page summarizes the results: 11 TABLE 2: Influence of Socioeconomic, Political and Military Factors on Central Treasury Revenue FIXED EFFECT 16 -18 cent. 16th -19th cent. 1 2 3 4 th MODEL Log population log nominal Socioeconomic wage log nominal Variables gdp per capita urbanization rate Constraint on Executive Military Threat 1.250*** 1.106*** 0.465*** 0.154*** 147 RANDOM EFFECTS 16 -18th cent. 16th -19th cent. 5 6 7 8 th 0.968*** 0.831*** 1.118*** 1.023*** 0.843*** 0.538*** 0.676*** 0.702*** 0.028*** 0.551*** constraint on executive -0.112 log army size of other states weighted by distance 0.152* log distance to central asian steppe Observations th 0.994*** 1.048*** 0.853*** 0.939*** 0.140*** 0.013 0.015 0.072*** -0.074 0.024 0.01 -0.134** 0.061 -0.089* -0.008 0.085 0.262*** 0.13 0.218** 0.213** 0.271*** 0.244*** 0.521*** 0.525*** 216 221 0.679*** 0.638*** 138 216 199 147 152 *,**,*** refer to 10%, 5% and 1% level of significance. The dependent variable is always the log central tax revenue. 12 Socieconomic variables in the regressions include population which for most European polities included in our comparisons increased sharply during the early modern period, doubling or more than doubling in many cases. 19 In all six specifications population is significant at 1% level and the coefficients suggest increases in population resulted in roughly proportional increases in revenue. To proxy for changes in per capita income we either include estimates of GDP per capita 20 or silver wages. 21 Since the dependent variable revenue is measured in silver, we adjust the real GDP per capita estimates by multiplying them by indices of silver price level by Allen (2003). These real GDP per capita estimates are not precise but for our present purposes, they give a reasonable good idea of the basic trends. In contrast to estimates of GDP, data for the daily wages of construction workers in the urban centers, especially in the leading urban centers is much more abundant and much more reliable for all of the European countries. For all specifications in table 2 these proxies for income are significant at 1% level but less than unit elastic. In models 1-5 and 7 we also include urbanization rates as regressor. In the literature urbanization rates are often used as proxies for income but for the current study are also relevant because they proxy the rise of urban culture, notions of civic duty and breakdown of feudal obligations. In most specifications coefficients for urbanization are significant with the expected sign but they also suggest issues of collinearity with other measures of income. We consider next the evidence on the relevance of constraints on executive which we proxy with the measure developed by Acemoglu et al. 22 . For models 1-4, 6 and 8 the coefficient is insignificant and for models 5 and 7 and it is significant but carries the opposite sign from that 19 McEvedy and Jones, Atlas of World Population History; Malanima,“European Population”. Based on Maddison, The World Economy, Historical Statistics; also Carlos Alvarez-Nogal and Leandro Prados de la Escosura, “The decline of Spain, 1500-1850, Conjectural estimates”, European Review of Economic History, Vol. 11, 2007, 319-66; 21 Robert C. Allen, “The Great Divergence in European Wages and Prices from the Middle Ages to the First World War”, Süleyman Özmucur and Ş. Pamuk, “Real Wages and Standards of Living in the Ottoman Empire, 1489-1914”, The Journal of Economic History, Vol. 62, 2002, pp. 292-321. 20 22 Acemoglu, D., S. Johnson, and J. Robinson (2005), 'The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth', American Economic Review, 95, (3), 546-579. 13 predicted in the literature. The unexpected result might also be related to strong correlation between constraint on executive and other measures of economic development. The variables under military threat the category relate to the body of work that emphasizes military revolution and fiscal military states. One thread in this literature emphasizes the political fragmentation in Europe as well as interstate competition and warfare as major causes of innovations in military technology and organization. It is argued this in turn led to the centralization of armies and finances. In order to proxy for the military threat level each administration faced at each period we calculate an index using the available data on army sizes available for Europe. 23 For each administration we calculated the sum of the sizes of armies of all other administrations weighted by the distances between the capitals. While the coefficient is not significant in all specifications, states appear to raise more taxes when rival states build up larger armies. One potential problem with the proxy for threat is that it might be capturing a common regional factor that affects all the states in a region and not an interaction between states. We also plan to construct a second proxy for interstate competition based on the frequency and magnitude of wars each state was involved it. A second version of military threat argument puts the emphasis on the Central Asian Steppe based nomadic mode of warfare and state tradition. After the invention of the stirrup, the nomads of central Asian steppes gained a significant military advantage over the neighboring settled populations and formed a lineage of states that included the Ottomans, Mughals and Safavids. It is argued that for territories adjacent to the steppe, the only effective response against the recurring attacks of horse riding archers was decentralized upkeep of their own cavalry, since infantry proved useless against their mobility and the nomads had no cities that could be attacked with artillery. Poland, Russia and China depended on their own light cavalry and chain of fortresses with no final solution against the nomads until modernity. For Western Europe, however, the threat of Arabic light cavalry had subsided by the 15th century, and from the Steppe it was protected by distance, forested landscape and lack of pastureland, which in turn put it earlier on a path towards centralized infantry armies and centralized finances. 24 23 Peter Brecke,, http://www.inta.gatech.edu/peter/power.html Kenneth Warren Chase “Firearms: A Global History to 1700”, Azar Gat,”War in Human Civilization”. 24 14 To proxy for the threat from the Steppe we include log distance to the steppe as a regressor in models 5-8 and which is significant at 1% level in all. One qualification for this finding is that to be able to include time-invariant log distance to steppe variable as a regressor, we allow for country specific random effects and hence do not adequately control for other unobserved time invariant heterogeneity that is correlated with some of the variables of interest. Including more of the relevant time invariant attributes of the polities in the regression or using time variant measures of the threat from nomadic warriors may help resolve the issue. Graph 1: Annual Revenues of European States 50-year averages in tons of silver 1800 1600 1400 1200 1000 800 England France Spain Austria Russia Prussia Dutch R Venice Ottoman Poland 600 400 200 0 1500-49 1550-99 1600-49 1650-99 1700-49 1750-89 Graph 2: Annual Revenues per capita annual averages in grams of silver 180 England Dutch R France Spain Venice Austria 120 Russia Prussia 100 Ottoman Poland 160 140 80 60 40 20 0 1500-09 1550-59 1600-09 1650-59 1700-09 1750-59 1780-89 Graph 3: Annual Revenue per capita / Daily Urban Wage 20 18 16 England Dutch R France Spain Venice Austria Ottoman Poland 14 12 10 8 6 4 2 0 1500-09 1550-59 1600-09 1650-59 1700-09 1750-59 1780-89 Graph 4: Annual Revenue per capita in the 19th Century in grams of gold 30 25 England Dutch R France Spain Venice Austria Russia Prussia Ottoman 20 15 10 5 0 1780-89 1820-29 1850-59 1880-89 1900-09 Graph 5: Annual Revenue per capita / Daily Urban Wage in the 19th Century 30 25 England Dutch R France Spain Austria Prussia Ottoman 20 15 10 5 0 1780-89 1820-29 1850-59 1880-89 1900-09