When Do Economic Elites Support Increasing Taxation? Evidence from the American South

Abstract

When do economic elites support the expansion of the state’s ability to tax? Despite the disproportionate influence that elites are theorized to exert on politics, answers to this question remain elusive. We argue that elites will support increased taxation, including on themselves, when they believe greater fiscal capacity will yield collective goods that further their interests, they have political control, and they expect this control to persist into the future. We test our argument by measuring changes in state taxation using an annual panel of Southern slave states between 1840 and 1860. Our strategy exploits both institutional differences across these states in the de jure political control of the slaveowning elite and rising international demand for Southern cash crops. We find that states with greater slaveowner control responded to increased demand for their crops by raising taxes on slaves and land, their primary assets, to fund railroad construction.