Those on all sides of the debate about the appropriate size and role of government tend to base their claims on evidence drawn exclusively from the experience of the modern welfare state. As a result, the conclusions drawn often elide over the different roles played by the centralizing state in history. This is unfortunate since there is a major difference between criticizing the welfare state and criticizing polities with strong fiscal and legal capacity. In his excellent Political Transformations and Public Finances, Mark Dincecco makes this point overwhelmingly clear. Using an extensive data set covering eleven European nations between 1650 and 1913 he elucidates the subtle relationship between centralized fiscal states and limited government. The work is original and deserves the attention of anyone interested in the history of the nation-state or debates about its role today.

While the book is not long (80 of its 233 pages are taken up by an extensive data appendix), the subject matter is very broad in its scope. The core of Dincecco's contribution lies in the data he compiles from secondary sources on variables including fiscal fragmentation, limits on executive authority, and sovereign credit risk. He uses these data to support his central claim that two problems had to be overcome in order to allow for the emergence of “modern systems of public finance.” The first problem was to build fiscal capacity by unifying the fragmented tax systems inherent in the early modern world. While this increase in fiscal capacity allowed states to better pay their debts and invest in infrastructure, there was no guarantee that absolute monarchs would choose to do so. As such, the second problem to be overcome was limiting the power of the state by introducing representative regimes that were more likely to manage public finances prudently. The book is organized in chapters that each elucidate a part of this argument.

Chapter 2 discusses how early modern states overcame fragmentation in their tax systems. Dincecco argues that this centralization internalized many of the “fiscal externalities” highlighted by Stephan Epstein (Freedom and Growth. London: Routledge, 2000). One weakness of the section, that will cause confusion for some readers, is that the exact nature of these externalities is never fully developed. It's not obvious, for example, if a fiscal externality directly affects the efficiency of markets, or simply raises the cost of collecting taxes by the central state. Chapter 3 focuses on the problem created by the centralization of tax collection. Namely, that unconstrained rulers tended to use their newfound fiscal capacity to engage in economically wasteful spending on wars and personal consumption. Dincecco then lays out his argument that parliamentary constraint was necessary in order to established prudence in fiscal affairs and to redirect spending towards economically productive ends. Chapter 4 investigates why the shift from fragmented and absolute government to centralized and limited government matters for an important economic outcome; the credit risk of the government. Dincecco runs through case studies for France, the Netherlands, and Spain showing that increases in fiscal capacity tended to lower credit risk (at least in France and Spain) and that limited government decreased credit risk in all three countries.

The early chapters do a nice job of laying out the basic argument, describing the data, and taking the reader through some plausible narratives in support of the author's positions. The major questions in the reader's mind at this point, however, concern causality. Dincecco addresses these concerns using a series of statistical tests. In Chapter 6 he uses the structural break methodology of Bai and Perron to validate his chosen break points for both the fiscal and political shifts discussed in the previous chapters. In Chapter 7, he implements a fixed effects regression framework to support his claims that moves towards fiscal centralization and limited government caused credit risk to decrease. In the regressions, Dincecco is very careful to control for a number of alternative hypotheses, including the possibility that external conflict may have induced improvements in public finances. The results strongly support his claims that both the move from fragmented to centralized tax collection and political transformation from absolute to limited government lowered credit risk.

A great strength of Dincecco's approach is that he demonstrates the validity of his arguments for so many countries over such a long period of time. Nonetheless, a book of such broad scope is bound to sacrifice some precision as a result of focusing on the “big picture.” For example, it would have been nice to learn more about the theoretical relationship between fiscal capacity and limited government. Should we think of one being necessary for the other? Does establishing fiscal centralization release forces which push the political equilibrium towards limited government?

Another argument that could have been more fully developed concerns Dincecco's claims surrounding modern systems of public finance and economic growth. He states early on that, “… the establishment of modern fiscal systems provided a solid institutional basis on which national governments could play positive economic roles, both during the Industrial Revolution over the late nineteenth century and during the rise of the welfare state over the twentieth century” (p. 6). The evidence for this set of claims is presented in Chapter 8 and focuses on the evolution of central government spending in France, the Netherlands, and Spain. For each country, there appears to be increases in the share of spending on education and public works around the time they achieved limited government (France: 1870, Netherlands: 1848, and Spain: 1876). In France, Dincecco argues that the authoritarian regime of Napoleon III (1851–1870) was accompanied by an increase in wasteful defense expenditures and a decrease in spending on education and public works. In contrast, the limited government of the Third Republic (1870–1940) saw expenditures on public goods increase again. There are two potential issues with these arguments. First, as a reader, I don't know exactly what the data are measuring. Why lump education and public works into a single aggregate measure? This makes it difficult for someone familiar with the data on education, for example, to tell if Dincecco is including spending by the central government alone, or spending by the central government, the departments, and the communes. It matters a great deal in this case since during the Third Republic, the passage of the Ferry laws were accompanied by the substitution of spending by the central government for spending at the local level (See Raymond Grew and Patrick Harrigan. School, State, and Society. Ann Arbor: University of Michigan Press, 1991: 212). Secondly, just because the central government is spending money on education doesn't mean human capital formation is greater. Locally (and often privately) funded Catholic schools were built at a disproportionate rate in France during the Second Empire and there is little evidence of a negative break in education outcomes such as enrollment or literacy.

These criticisms are not meant to imply that Dincecco is wrong in his claims concerning economic growth and modern public finance, but rather that these arguments are not compelling given their brief treatment compared to the rest of the material in the book. Showing that centralization of tax collection and the introduction of limited government lowered sovereign credit risk and laid the foundations for modern public finance is a major contribution. Dincecco has done a service to us all by putting these data together and analyzing them with skill. If everyone were to read this book, the debates about the proper size and role of the state I mentioned in the first paragraph would be vastly more intelligent.