73 Pages Posted: 1 May 2018 Last revised: 6 May 2020

Date Written: May 5, 2020

Abstract

This paper evaluates the budgetary origins of fiscal-military prowess, taking early modern Europe as a laboratory. We first review evidence that states adopting credible budgets accrued substantial advantages in raising taxes and loans. Since victory in war during the early modern period was largely a matter of out-spending one’s opponent, credible budgets should also have conferred an advantage in winning wars. Exploiting new panel data on 10 major European powers over several centuries, we show that credible budgets led to significantly larger wartime expenditures, and thus better chances of winning. To the best of our knowledge, this is the first systematic examination of its kind. Since credible budgets could be adopted by decidedly non-democratic polities, ours is a theory of limited government—rather than participative democracy—leading to military strength. That said, we discuss the implications of our analysis for the modern debate over the democratic victory thesis.