“Tax, Violence and Relative State Power in Nondemocracy” by Yijiang Wang
Cheung Kong Graduate School of Business
We model relative state power (RSP) and use it to explain nondemocracies' diverse experiences with tax and violence. In the ruler-people tax conflict, the ruler adjusts tax and coercion levels to preempt people's threat to rebel and maximize revenue. High wage, effective coercion and low benefit from power lead to strong RSP and political stability (PS) with people paying taxes. PS may be achieved through low tax when coercion is ineffective or bribery when information is perfect. It is lost at a higher income if benefit from power increases faster than or just as fast as wage! Forced labor (full tax and brutal coercion) emerges with coercion effective and wage low (Mao's China), harmony (low tax, low coercion) with coercion ineffective and wage high. Wage has ambiguous effect on tax, no effect on coercion (Deng's China). Greater rebel threat reduces both. Private investment, public good and demography, etc., also affect RSP.