The Budgetary Origins of Fiscal Military Prowess

By Gary Cox and Mark Dincecco

Does political representation improve the government’s military might? Two types of theory say yes. The first is the “participative” theory, which the classic sociologist Max Weber describes as follows: “The basis of democratization is everywhere purely military in character; [whenever] the community…was compelled [by the exigency of war] to secure the cooperation of the non-aristocratic masses [they] put arms, and along with arms political power, into their hands.” The logic is that when soldiers cannot be cheaply monitored, they must be given their share of the war spoils to induce their best effort, and extending voting rights is necessary to make this deal credible. The second theory is “executive constraints”, which founding father James Madison characterizes in the following terms: “[the] power over the purse may…be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people.” This theory links limits on a leader’s ability to unilaterally wage war to military strength.

In a recent article, we address this debate by analyzing the historical roots of the state’s ability to fight. We focus on early modern Europe, a context in which nation-states were in their infancy, and most were plagued by severe deficits in their institutional capacity. In this context, even basic reforms could significantly improve military prowess. We highlight the introduction of credible budgets, which were statutory, lapsed after a fixed term (generally one year), and were auditable by parliament. Prior to this reform, state budgets – if they even existed – were the private planning documents of rulers, not subject to outside scrutiny. During the early modern period, each of the ten polities in our sample reformed their budget at least once (Table 1).

We argue that the introduction of credible budgets had two important fiscal implications. Since parliamentary elites were more confident that revenues granted for a specific purpose would be spent accordingly, they were more willing to authorize new taxation. Similarly, since investors were more confident that they would be repaid, they were more eager to loan the state money. Once a government’s capacity to levy taxes and attract loans improved, it should have been able to spend more money during wars. Greater wartime spending, in turn, should have improved the odds of winning, since early modern warfare was typically a war of fiscal attrition in which victory belonged to the side that could outspend its rivals.

We evaluate this argument in two parts. We first provide descriptive and statistical evidence that the introduction of credible budgets significantly improved the state’s fiscal capacity. We construct new data on the participants, coalitions, and outcomes of all interstate wars fought worldwide by each sample polity across more than 250 years, from the time of the Old Regime to World War I, which we then pair with annual data on government finances. Our analysis indicates that the establishment of a credible budget predicts a significant wartime expenditure bump: having a credible budget was associated with a 36-44 percent increase in wartime spending per capita (relative to peacetime). We find, moreover, that larger wars elicited significantly greater expenditures. Our results are robust to several potential confounders, including the level of economic development, the occurrence of civil wars, the quality of dynastic leadership, the economic strength of opponents, and the extent of voting rights. No single polity (e.g. England) drives our results.

We next evaluate whether the introduction of credible budgets improved the likelihood of victory in war. We show that budgetary coalitions won 79 percent of their wars against non-budgetary opponents (excluding draws). If we restrict the sample to wars fought in Europe only, budgetary coalitions still won 73 percent. To perform a more stringent analysis, we conceptualize a coalition’s ability to deliver destructive military force as a function of three features: the “total factor productivity” of the coalition (defined below); its labor input (e.g. the amount of soldiers), and its capital input (e.g. the amount of weapons). We view total factor productivity as a “military force multiplier” that depends on both budgetary status and the extent of voting rights. Our analysis indicates a significant budgetary advantage: having a credible budget was associated with a robust increase in the odds of winning wars. For example, say that coalition A’s chance of victory in the absence of any such advantage was 50-50. According to our results, if coalition A now gained a budgetary advantage, then the probability of winning rose to nearly 80 percent. We do not find evidence, however, that extending voting rights predicts any similar advantage. Moreover, we discuss why alternative explanations about military-industrial potential or overseas colonization do not diminish the importance of credible budgets.

Taken together, the results of our analysis suggest that historical nation-states in Europe which implemented executive constraints via credible budgets were able to significantly improve their fiscal and military capacity and increase their probability of victory in war.

Should we expect credible budgets to have similar results for military prowess everywhere? Several conditions were likely important for the observed results in early modern Europe. Many legislatures there enjoyed long-held rights to approve or deny new taxation. When budgets were eventually introduced outside Europe, they were often implemented in places where legislatures were traditionally non-existent and still lacked fiscal teeth. Different initial conditions could significantly mediate the fiscal effects of establishing regular budgets.

Should we expect modern democratic governments to wield a budgetary advantage? Following the logic of “if you can’t beat them, join them”, several autocracies established regular budgets starting in the late nineteenth century, reducing the prior “democratic” advantage in war. Nevertheless, we might think that budgetary democracies would still have more credible budgets than budgetary autocracies, since democratic legislatures tend to exert firmer fiscal control. Modern democracies do in fact appear to have a borrowing advantage.

All told, the results of our analysis shed new light on the democratic victory hypothesis, the claim that modern democracies are more likely to win their wars. Our results are consistent with the notion that democratic governments became more prudent in which wars they decided to participate in and more effective at fighting them – by a significant margin over non-budgetary autocracies, and by a smaller but arguably still meaningful margin over budgetary autocracies. Furthermore, the fraction of wars between democracies and non-budgetary autocracies significantly fell – first since non-budgetary autocracies recognized that they could not compete, and second since they introduced regular budgets themselves. Finally, our results suggest that extending voting rights does not have a discernable effect on either fiscal and military capacity or war outcomes. Democracies appear to be militarily successful mainly because they exert a credible budget constraint over their political leaders à la Madison, rather than because they offer broad political participation à la Weber.


  • Mark Dincecco

    Mark Dincecco is Associate Professor of Political Science at the University of Michigan. His research analyzes the long-run historical determinants of the political and economic development patterns that we observe today, with a focus on Europe and Eurasia. Dincecco is the author of numerous peer-reviewed articles and three books including Political Transformations and Public Finances: Europe, 1650-1913 (Cambridge 2011) and State Capacity and Economic Development: Present and Past (Cambridge 2017). His most recent book is From Warfare to Wealth: The Military Origins of Urban Prosperity in Europe (Cambridge 2017, with Massimiliano Onorato). This book won the 2018 William H. Riker Best Book Award. In 2016-17, Dincecco was the Edward Teller National Fellow at the Hoover Institution at Stanford University.

  • Gary W. Cox

    Gary W. Cox is the William Bennett Munro Professor of Political Science at Stanford University. In addition to numerous articles in the areas of legislative and electoral politics, Cox is author of The Efficient Secret (winner of the 1983 Samuel H. Beer dissertation prize and the 2003 George H. Hallett Award), co-author of Legislative Leviathan (winner of the 1993 Richard F. Fenno Prize), author of Making Votes Count (winner of the 1998 Woodrow Wilson Foundation Award, the 1998 Gregory Luebbert Prize, and the 2007 George H. Hallett Award); co-author of Setting the Agenda (winner of the 2006 Leon D. Epstein Book Award); and author of Marketing Sovereign Promises (winner of the 2017 William H. Riker Prize). A former Guggenheim Fellow, Cox was elected to the American Academy of Arts and Sciences in 1996 and the National Academy of Sciences in 2005. He holds a Ph.D. from the California Institute of Technology.

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