What was the effect of war outcomes on key indicators of state formation in a post-war phase? In this chapter I demonstrate that victors and losers of war were set into different state capacity trajectories after war outcomes were revealed. I do this using a set of cutting-edge causal inference techniques to analyse the gap in state capacity that was generated between winners and losers in the time-period of most stringent warfare (1865-1913). After substantiating that the outcomes of these wars were determined by exogenous or fortuitous events, I provide a short description of my treatment—i.e., defeat—and outcomes—i.e., total revenues and railroad mileage as key indicators of state infrastructural capacity. My estimator, a difference-in-differences model, shows defeat had a negative long-term impact on state capacity which remains remarkably robust even after relaxing key assumptions. Finally, I use the synthetic control method to estimate how state capacity in Paraguay and Peru would have evolved in a counterfactual world where these countries were spared the most severe defeats in late nineteenth-century Latin America.

Elasticity of demand is introduced and it is shown how this characterises how revenue will change upon a price increase (the two distinct possibilities being represented by elastic and inelastic demand). Profit maximisation is considered in general, and it is shown that, when maximising profit, marginal revenue and marginal cost must be equal. Two very different cases are then studied: that in which the firm is a monopoly and that of perfect competition.

The profit-maximisation problem (for production of one good) is introduced as motivation for the development of general optimisation techniques. The general concept of a critical (or stationary) point is presented, together with the method for finding such points and classifying their nature in two different ways: by examining the sign of the derivative around the point and by using the second-derivative test. Optimisation on intervals and infinite intervals is then discussed (where the end-points must be taken into consideration). Additional economic and financial applications are given.

Among political economists, the prevalence dictatorship and civil conflict captures the central features of societies afflicted with political violence. Accordingly, this chapter adopts this terminology and develop an analytical framework to better understand why many Muslim societies are inflicted with varying and heightened levels of political violence. The chapter identifies patterns in dictatorship and civil war in Muslim societies, relative to non-Muslim societies; and how they vary across oil and non-oil producing countries. These empirical patterns motivate a discussion of how variation in preexisting institutional structures and sources of nontax government revenue (rents) may explain these patterns in political violence. This discussion identifies tensions in existing theoretical accounts, leading the author to develop a formal model. The model shows that increases in rents can entrench dictatorship, while a decline in rents may facilitate peaceful transitions to democracy or lead to the outbreak of civil war. Societies whose preexisting institutional structures encourage “sharing” government resources with the opposition are more likely to transition to democracy. The model’s hypotheses form the basis of book’s subsequent empirical analysis.

Whether domestic and international contexts affect governments’ abilities to alter total expenditures, revenues, deficits, and budgetary volatility is our focus in Chapter 6. We develop expectations about the influence of government ideology and majority status together with contextual factors and other budgetary components on each of our four budgetary components. For the domestic contexts, we consider election timing, unemployment, and economic growth. In the international realm, we focus on globalization and conflict involvement. Building on the results from the panel vector autoregressive (pVAR) model from Chapter 5, we specify separate reduced-form models for each of our budget component variables to test our theoretical expectations. Across the results we present in this chapter, we find very few statistically significant effects, especially in terms of long-run effects, on the four budgetary components. The strongest results are for the influence of contextual factors on budgetary volatility, specifically when increasing unemployment and economic openness. When unemployment or economic openness increases, we find that budgetary volatility increases under majority left governments in both the short- and long-runs. This evidence indicates that right and left governments differ in how much they respond to both domestic and international contexts.

In Chapter 7, we conclude by placing both our theoretical and methodological contributions within the wider world of government decision-making. Our theory begins with the core assumption that government ideology drives the budgetary priorities of governments. With a blank slate, these ideological preferences would steer governments in shaping budgets. While this is a useful place to start theoretical debate about political budgeting, an important part of our argument is about how contextual factors influence whether governments can achieve their ideological priorities. Throughout the book, we find many instances in which context overwhelms ideology to drive government budgets. In developing our theoretical ideas about the interplay between ideology and contexts, we emphasize the importance of recognizing the interlinked nature of the different parts of political budgets. We take advantage of recent advances in dynamic compositional models and panel vector autoregressive (pVAR) models when testing our ideas. To make the results from these complex models accessible, we rely heavily on graphical presentations of our findings. Together, our theory of budgets and the methods we use to test it are all intended to bring studies closer to the messy but fascinating real world of political budgeting.

We turn to the larger pieces of the budget in Chapter 5, where we focus on two objectives. First, we ask how the components of the budgets fit together by conducting causality tests for the full range of possible relationships between expenditures, revenues, deficits, and budgetary volatility using a panel vector autoregressive (pVAR) model. We find that changes to expenditures and revenues drive changes to deficits, and we also find that changes to deficits lead to revenue changes. Second, using findings from these causality tests from the pVAR model, we then test our expectations about ideology and context on total spending, revenues, budget deficits, and budgetary volatility. Once we include these causal relationships in our models, we find that government ideology and majority status do not appear to alter either total expenditures or revenues, but a shift from a left to a right majority government is associated with a long-run decrease in deficits. For budgetary volatility, a move from a left to a right majority government corresponds with a positive significant increase in volatility. These findings fit our expectations that it is political competition that shifts budgets, with government ideology many times proctoring for those differences.

This topic examines the nature of factors that affect what people buy and how much. These factors can be categorised into controllable and uncontrollable by managers. The first category relates to internal factors to the firm and involves the marketing mix. The second category relates to external factors in the business environment. A mathematical framework of analysis is required to quantify the effects of the different variables. This involves the use of demand functions or equations, which are often in a linear or power form. The linear form entails the coefficients of explanatory variables representing the marginal effects of those variables. The power form entails the coefficients or powers of the variables representing elasticities. There is a discussion of the factors determining various elasticities and their interpretation. The importance of elasticities in economic analysis is explained, in terms of managerial decision making and forecasting. The focus is on the application of concepts in demand theory to real-life situations, and the performance of the necessary calculations to make decisions and forecasts. Many solved problems are presented as an aid to this process.

Chapter 9 explores Burke’s economic critique of Britain’s East India Company in India. I first outline Burke’s general approval of government trading monopolies, which he defended for opening up new trade routes and promoting commerce in distant lands. I then transition to discussing the Select Committee report that detailed the Company’s pattern of abuse in India, Ninth Report of Select Committee, of which Burke was its primary author. Burke condemned the firm for disrupting the supply and demand laws of the local Indian economy and manipulating the competitive price system. He also criticized the company for using surplus revenue as a means to stimulate trade, rather than use trade as a means to increase revenue. Similarly, I elaborate on Ninth Report’s criticisms of the Company’s monopoly on opium, saltpeter, and salt, which produced destructive economic and social consequences and further exposed the firm’s gross misconduct in India.