The Fundamental Dilemma of Fiscal Centralization

The centralization of authority is essential to national politics. Acephalous societies are characterized by violence, warlords, and the constant threat to property and life. Some degree of central control over a territory is essential for the formation of a state. Although the threat of force can create a territorial unit, its consolidation only occurs when political authority becomes expressed in the capacity to tax. This book explores the politics of fiscal authority, focusing on the centralization of taxation in Latin America during the 20th century. The first half of the book explores this issue in great detail for the case of Mexico. The political (and fiscal) fragmentation associated with civil war at the beginning of the century was eventually transformed into the highly centralized regime we associate with Mexico today. Fiscal centralization was more extreme in Mexico than in most other places in the world, but the challenges and problems tackled by Mexican politicians were not unique. The second half of the book thus analyzes the other Latin American federal regimes – Argentina, Brazil, and Venezuela. My hope is that this book will shed light on the factors that explain the consolidation of tax authority in developing countries not only in Latin America but elsewhere. The basic premise of the theoretical framework of this book is that fiscal centralization can be best studied as the consequence of a bargain struck between self-interested regional and national politicians.