Unification and Division: A Theory of Institutional Choices in Imperial China

Ancient China experienced various rounds of division and unification. Unification was maintained through economic and political institutions such as low tax rates to reduce peasant rebellions and the division of authority among government officials to reduce usurpation of power. A ruler’s choice of institutions to maintain unification is studied in a theoretical model. Interactions among external threats, internal rebellions by peasants, and usurpation of power by government officials are established. A higher level of external threats induces the ruler to choose a higher level of autonomy for government officials and a higher tax rate. That is, equilibrium probability of internal rebellions increases endogenously with the level of external threats. When government officials are more likely to usurp power, the ruler will choose a higher tax rate, thus equilibrium probability of peasant rebellions increases. Interestingly, a higher level of state power could induce the ruler to choose a lower tax rate!