Top‑Down Monitoring or Top‑down Encroachment? How Centralized Tax Administration Undermined State Capacity in China
Keywords:
state capacity, fiscal capacity, tax administration, taxation, ChinaAbstract
Centralized tax administration with top‑down monitoring is regarded as a key element of the modern fiscal state. However, centralized administration can also introduce new agency problems for the monitors and create distortions across levels of the bureaucratic hierarchy. This paper studies how a fiscal administration reform aimed at monitoring local taxation can have unintended consequences on state capacity in late 18th‑century China, using a novel dataset on tax collection constructed from administrative archives. We exploit predetermined variation across counties in exposure to the reform, which imposed formal oversight on county taxation by provincial treasuries. We find that the reform had a negative effect on tax collection. The decline in tax collection can be explained by a top‑down encroachment mechanism: the reform created greater scope for monitors to withhold and misappropriate county funds. Such intergovernmental fiscal encroachment undermined local tax enforcement capacity and distorted county bureaucrats’ incentives to underreport and embezzle revenue. We provide a range of evidence consistent with these causal chains.
Downloads
References (82)
Acemoglu, Daron, and James A. Robinson. 2019. The Narrow Corridor: States, Societies, and the Fate of Liberty. New York: Penguin Press.
Acemoglu, Daron, Simon Johnson, and James A. Robinson. 2005. “Institutions as a Fundamental Cause of Long-Run Growth.” In Handbook of Economic Growth, Vol. 1, edited by Philippe Aghion and Steven N. Durlauf, 385–472. Elsevier.
Aman-Rana, Shan, Clement Minaudier, and Sandip Sukhtankar. 2023. “Informal Fiscal Systems in Developing Countries.” National Bureau of Economic Research Working Paper 31793.
Aneja, Abhay, and Guo Xu. 2024. “Strengthening State Capacity: Civil Service Reform and Public Sector Performance during the Gilded Age.” American Economic Review 114 (8): 2352–2387.
Bandiera, Oriana, Michael Carlos Best, Adnan Qadir Khan, and Andrea Prat. 2021. “The Allocation of Authority in Organizations: A Field Experiment with Bureaucrats.” Quarterly Journal of Economics 136 (4): 2195–2242.
Becker, Sascha O., Andreas Ferrara, Eric Melander, and Luigi Pascali. 2025. “Wars, Taxation and Representation: Evidence from Five Centuries of German History.” Journal of the European Economic Association, jvaf019.
Bertrand, Marianne, Robin Burgess, Arunish Chawla, and Guo Xu. 2020. “The Glittering Prizes: Career Incentives and Bureaucrat Performance.” Review of Economic Studies 87 (2): 626–655.
Besley, Timothy, and Torsten Persson. 2009. “The Origins of State Capacity: Property Rights, Taxation, and Politics.” American Economic Review 99 (4): 1218–1244.
Besley, Timothy, and Torsten Persson. 2013. “Taxation and Development.” In Handbook of Public Economics, Vol. 5, 51–110. Elsevier.
Besley, Timothy, Robin Burgess, Adnan Khan, and Guo Xu. 2022. “Bureaucracy and Development.” Annual Review of Economics 14: 397–424.
Brandt, Loren, Debin Ma, and Thomas G. Rawski. 2014. “From Divergence to Convergence: Reevaluating the History Behind China’s Economic Boom.” Journal of Economic Literature 52 (1): 45–123.
Brewer, John. 1989. The Sinews of Power: War, Money and the English State, 1688–1783. Cambridge, MA: Harvard University Press.
Cantoni, Davide, Cathrin Mohr, and Matthias Weigand. 2024. “The Rise of Fiscal Capacity: Administration and State Consolidation in the Holy Roman Empire.” Econometrica 92 (5): 1439–1472.
Cao, Shuji. 2001. Zhongguo Renkou Shi: Qingshiqi [History of Population in China: The Qing Period]. Shanghai: Fudan University Press.
Carrieri, Maria, and Luis R. Martinez. 2022. “Fiscal Rules, Austerity in Public Administration, and Political Accountability: Evidence from a Natural Experiment in Colombia.” Working Paper.
Chambru, Cedric, Emeric Henry, and Benjamin Marx. 2024. “The Dynamic Consequences of State Building: Evidence from the French Revolution.” American Economic Review 114 (11): 3578–3622.
Chen, Feng. 2009. “Lun Haoxian Guigong (On the Haoxian to the Public).” Journal of Tsinghua University (Philosophy and Social Sciences) 3: 17–38.
Chen, Feng. 2013. A Study of Fiscal and Monetary Policies in the Qing Dynasty. Wuhan: Wuhan University Press.
Chen, Zhenhan, Guoliang Xiao, and Zhengwen Xiong. 2012. Qingshulu Jingjishi Ziliao [Economic History Materials from the Veritable Records]. Beijing: Peking University Press.
China Historical GIS. 2014. “Qingai Liangjia Ziliao Ku (The Database of Grain Price in the Qing Dynasty).”
China Historical GIS. 2016. “China Historical Geographic Information System, Version 6.” Fairbank Center for Chinese Studies of Harvard University and the Center for Historical Geographical Studies at Fudan University.
Chiovelli, Giorgio, Leopoldo Fergusson, Luis R. Martinez, Juan David Torres, and Felipe Valencia Caicedo. 2023. “Bourbon Reforms and State Capacity in the Spanish Empire.” SSRN Working Paper 4545407.
Ch’u, T’ung-tsu. 1962. Local Government in China under the Ch’ing. Cambridge, MA: Harvard University East Asia Center.
Colonnelli, Emanuele, Mounu Prem, and Edoardo Teso. 2020. “Patronage and Selection in Public Sector Organizations.” American Economic Review 110 (10): 3071–3099.
Cox, Gary W., and Mark Dincecco. 2021. “The Budgetary Origins of Fiscal-Military Prowess.” Journal of Politics 83 (3): 851–866.
Dal Bó, Ernesto, Frederico Finan, and Martin A. Rossi. 2013. “Strengthening State Capabilities: The Role of Financial Incentives in the Call to Public Service.” Quarterly Journal of Economics 128 (3): 1169–1218.
Dincecco, Mark. 2009. “Fiscal Centralization, Limited Government, and Public Revenues in Europe, 1650–1913.” Journal of Economic History 69 (1): 48–103.
Dincecco, Mark, and Gabriel Katz. 2016. “State Capacity and Long-Run Economic Performance.” Economic Journal 126 (590): 189–218.
Dovis, Alessandro, and Rishabh Kirpalani. 2020. “Fiscal Rules, Bailouts, and Reputation in Federal Governments.” American Economic Review 110 (3): 860–888.
FAO. 2012. “Global Agro-Ecological Zones, Version 3.” Food and Agriculture Organization.
Faure-Grimaud, Antoine, Jean-Jacques Laffont, and David Martimort. 2003. “Collusion, Delegation and Supervision with Soft Information.” Review of Economic Studies 70 (2): 253–279.
Fenske, James, Muhammad Haseeb, and Namrata Kala. 2023. “How Rules and Compliance Impact Organizational Outcomes: Evidence from Delegation in Environmental Regulation.” National Bureau of Economic Research Working Paper 31991.
Fernández-Villaverde, Jesús, Mark Koyama, Youhong Lin, and Tuan-Hwee Sng. 2023. “The Fractured-Land Hypothesis.” Quarterly Journal of Economics 138 (2): 1173–1231.
Finan, Frederico, Benjamin A. Olken, and Rohini Pande. 2017. “The Personnel Economics of the Developing State.” In Handbook of Economic Field Experiments, Vol. 2, edited by Abhijit Banerjee and Esther Duflo, 467–514. Elsevier.
Fremerey, Melinda, Andreas Lichter, and Max Löffler. 2025. “Strategies and Consequences of Local Fiscal Consolidation: Evidence from Germany.” Journal of Urban Economics 149: 103792.
Garfias, Francisco, and Emily A. Sellars. 2022. “Fiscal Legibility and State Development: Evidence from Colonial Mexico.” Working Paper.
Gennaioli, Nicola, and Hans-Joachim Voth. 2015. “State Capacity and Military Conflict.” Review of Economic Studies 82 (4): 1409–1448.
Greif, Avner, Joel Mokyr, and Guido Tabellini. 2025. Two Paths to Prosperity: Culture and Institutions in Europe and China, 1000–2000. Princeton: Princeton University Press.
Grembi, Veronica, Tommaso Nannicini, and Ugo Troiano. 2016. “Do Fiscal Rules Matter?” American Economic Journal: Applied Economics, 1–30.
Hu, Heng. 2022. “New Analysis on the Ranking System of Counties during the Qing Dynasty.” The Chinese Historical Geography (2): 67–90.
Iwai, Shigeji. 2011. A Study on Early Modern Fiscal History of China [Translated from Japanese]. Beijing: Social Science Academic Press.
Jensen, Anders D., and Jonathan L. Weigel. 2026. “No Taxation without Administration: Bringing the State Back into the Public Finance of Developing Countries.” Journal of Economic Literature 64 (1): 246–280.
Johnson, Noel D., and Mark Koyama. 2017. “States and Economic Growth: Capacity and Constraints.” Explorations in Economic History 64: 1–20.
Kaskel, Elisabeth, and May-Li Lin. 2022. “Public Finance.” In The Cambridge Economic History of China, Vol. 2, edited by Debin Ma and Richard von Glahn, 244–279. Cambridge University Press.
Kiser, Edgar, and Steven Karceski. 2017. “Political Economy of Taxation.” Annual Review of Political Science 20: 75–92.
Kornai, Janos, Eric Maskin, and Gerald Roland. 2003. “Understanding the Soft Budget Constraint.” Journal of Economic Literature 41 (4): 1095–1136.
Kresch, Evan Plous. 2020. “The Buck Stops Where? Federalism, Uncertainty, and Investment in the Brazilian Water and Sanitation Sector.” American Economic Journal: Economic Policy 12 (3): 374–401.
Lai, Huimin. 2016. The Purse of Emperor Qianlong. Beijing: Zhonghua Shuju.
Lamouroux, Christian, and Richard von Glahn. 2022. “Public Finance.” In The Cambridge Economic History of China, Vol. 1, edited by Debin Ma and Richard von Glahn, 330–380. Cambridge University Press.
Levi, Margaret. 1988. Of Rule and Revenue. Berkeley: University of California Press.
Li, Guangwei. 2024. Qingdai Tianfu Jiqian yu Guojia Caizheng Zhili [Arrears in Land Taxation and State Fiscal Governance in the Qing Dynasty]. Beijing: People Press.
Liu, Cheng-yun. 1993. “Chong, Fan, Pi, Nan: Qingdai Dao, Fu, Zhou, Xian Dengji Chutan” [A Preliminary Research on the Importance Rating System of Circuit, Prefecture, Department, and County in Qing Dynasty]. Bulletin of the Institute of History and Philology Academia Sinica 64 (1): 175–204.
Li, Weijia, Gerard Roland, and Yang Xie. 2022. “Erosion of State Power, Corruption Control and Fiscal Capacity.” Economic Journal 132 (644): 1542–1565.
Ma, Debin, and Jared Rubin. 2019. “The Paradox of Power: Principal-Agent Problems and Administrative Capacity in Imperial China (and Other Absolutist Regimes).” Journal of Comparative Economics 47 (2): 277–294.
Mastrorocco, Nicola, and Edoardo Teso. 2023. “State Capacity as an Organizational Problem: Evidence from the Growth of the US State over 100 Years.” National Bureau of Economic Research Working Paper 31591.
Mayshar, Joram, Omer Moav, and Luigi Pascali. 2022. “The Origin of the State: Land Productivity or Appropriability?” Journal of Political Economy 130 (4): 1091–1144.
Moreira, Diana, and Santiago Pérez. 2024. “Civil Service Exams and Organizational Performance: Evidence from the Pendleton Act.” American Economic Journal: Applied Economics 16 (3): 250–291.
Ni, Yuping. 2013. Qingchao Jia-Dao Caizheng yu Shehui [Public Finance and Society in Jiaqing and Daoguang Periods of the Qing Dynasty]. Beijing: The Commercial Press.
North, Douglass C., and Barry R. Weingast. 1989. “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England.” Journal of Economic History 49 (4): 803–832.
Olken, Benjamin A., and Monica Singhal. 2011. “Informal Taxation.” American Economic Journal: Applied Economics 3 (4): 1–28.
Pettersson-Lidbom, Per. 2010. “Dynamic Commitment and the Soft Budget Constraint: An Empirical Test.” American Economic Journal: Economic Policy 2 (3): 154–179.
Piguillem, Facundo, and Alessandro Riboni. 2021. “Fiscal Rules as Bargaining Chips.” Review of Economic Studies 88 (5): 2439–2478.
Qiu, Jie. 2021. Wanqing Guanchang Jingxiang [A Mirror of the Late Qing Officialdom]. Beijing: Social Science Academic Press.
Queralt, Didac. 2019. “War, International Finance, and Fiscal Capacity in the Long Run.” International Organization 73 (4): 713–753.
Rodden, Jonathan. 2002. “The Dilemma of Fiscal Federalism: Grants and Fiscal Performance around the World.” American Journal of Political Science, 670–687.
Sánchez de la Sierra, Raúl. 2020. “On the Origins of the State: Stationary Bandits and Taxation in Eastern Congo.” Journal of Political Economy 128 (1): 32–74.
Scott, James C. 1998. Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed. New Haven, CT: Yale University Press.
Shanghai Library. 2009. Zhongguo Jiapu Zongmu [A Comprehensive Catalogue on the Chinese Genealogy]. Shanghai: Shanghai Guji Chubanshe.
Sng, Tuan-Hwee, and Chiaki Moriguchi. 2014. “Asia’s Little Divergence: State Capacity in China and Japan before 1850.” Journal of Economic Growth 19 (4): 439–470.
Tilly, Charles. 1990. Coercion, Capital, and European States, AD 990–1990. Cambridge: Basil Blackwell.
Vannutelli, Silvia. 2021. “From Lapdogs to Watchdogs: Random Auditor Assignment and Municipal Fiscal Performance in Italy.” Unpublished.
Vries, Peer. 2015. State, Economy and the Great Divergence: Great Britain and China, 1680s–1850s. London: Bloomsbury Publishing.
Wang, Yeh-Chien. 1973. Land Taxation in Imperial China, 1750–1911. Cambridge, MA: Harvard University Press.
Weingast, Barry R. 2009. “Second Generation Fiscal Federalism: The Implications of Fiscal Incentives.” Journal of Urban Economics 65 (3): 279–293.
Weingast, Barry R. 2014. “Second Generation Fiscal Federalism: Political Aspects of Decentralization and Economic Development.” World Development 53: 14–25.
Yared, Pierre. 2019. “Rising Government Debt: Causes and Solutions for a Decades-Old Trend.” Journal of Economic Perspectives 33 (2): 115–140.
Yun-Casalilla, Bartolomé, Patrick K. O’Brien, and Francisco Comín Comín. 2012. The Rise of Fiscal States: A Global History, 1500–1914. Cambridge, UK: Cambridge University Press.
Zelin, Madeleine. 1984. The Magistrate’s Tael: Rationalizing Fiscal Reform in Eighteenth-Century Ch’ing China. Berkeley: University of California Press.
Zhang, Deer. 2004. Zhongguo Sanqiannian Qixiang Jilu Zongji [Comprehensive Compilation of Weather Records in Last Three Millenniums of China]. Nanjing: Jiangsu Educational Press.
Zheng, Xiaoyou. 2022. Renming Guantian: Qingdai Xingbu de Zhengwu yu Guanyuan [Life Matters: The Administration and Officials of the Ministry of Justice in the Qing Dynasty]. Shanghai: Shanghai Renmin Press.
Zhou, Jian. 2012. “Withholding Local Revenues in Public Finance in Qing Dynasty.” Researches in Chinese Economic History 3 (1): 146–155.
Zhou, Jian. 2020. Weizheng Zhigong: Qingdai Tianfu yu Guojia Caizheng, 1730–1911 [Tribute for the State: Land Tax in Qing Dynasty and Public Finance]. Beijing: Beijing Normal University Press.
Downloads
How to Cite
License
Copyright (c) 2026 CQH does not retain copyright in its Working Paper Series. Copyright in each paper remains vested in the respective author(s). Contact details for the author(s) are available on the abstract page of the relevant paper.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
The CQH Working Paper Series is a scholarly platform of the Centre for Quantitative History dedicated to facilitating the circulation of research. Copyright in each paper remains with the author(s). Authors publishing in the Series grant CQH a non-exclusive right to host, archive, and make the paper publicly available as part of the Series. Unless otherwise indicated, papers are distributed under a CC BY-NC-ND 4.0 licence.