The "fiscal contract" in Andean and Nordic countries, 1850-2010

This chapter compares the evolution of fiscal systems in Andean and Nordic countries between 1850 and 2010. It does so through the lens of the "fiscal contract": because tax revenues are in some degree voluntary, citizens who pay them would expect state services in return, and have incentives and leverage to fiscalise the use of public funds. The structure of payments could therefore impact both the direction and efficiency of state spending. We argue that Norway and Sweden developed universal fiscal contracts, while narrow ones emerged in Bolivia, Chile, and Peru. This would be consistent with higher, if unstable, use of revenues from natural resources in the Andean countries - a type of revenue which is normally relatively easy to administer, and requires bargaining with few localised agents (Peres-Cajías et al., in Resource abundance and public finances in five peripheral economies, 1850-1939, 2020). We illustrate the emergence of these different fiscal contracts through the timing and nature of four tax transitions: the repeal of the Ancien Régime taxes and their replacement with liberal ones, the decline of trade taxes, the expansion of income taxation, and finally the appearance of general consumption taxes. Through the chapter, the emphasis is on the introduction and development of modern, broad-based forms of taxation, that require greater administrative capacity, and voluntary compliance.