Dominant theories of state formation and nation-building lean heavily on the classic European tale of the simultaneous development of a ‘fiscal state’ and a ‘nation state’. The main idea is that fiscal reform, including the adoption of modern taxes such as direct income taxes, was part and parcel of a larger process to strengthen the central state, both internally and externally. This process also involved the idea of a ‘social contract’ between the state and its tax-paying citizens, in the sense that revenues were mobilized to promote public goods, and that there was ‘no taxation without (limited) representation’.
However, this Euro-centered narrative does not factor in that more than two-thirds of the world embarked on a path towards fiscal ‘modernization’ under colonial rule. Contrary to sovereign states, these countries were controlled by a foreign satellite government, and ideas of nationhood were either non-existent, weakly developed, or emerged exactly in opposition against the obligation to pay tribute to external rulers. This difference between the experience of sovereign and colonial states forces us to rethink the rationale and practice of fiscal modernization in large parts of the world.
We argue that while the introduction of modern taxes in the colonies followed pretty quickly after they had been implemented in the main European metropoles, there are four major ways in which the logic of colonial fiscal development (c. 1820-1970) was at odds with the European experience. First, ‘modern’ taxes came about without a complementary development of accountable government. Second, they were introduced absent independent military and monetary regimes. Third, welfare provision and the development of bureaucratic capacity remained modest in most colonies, certainly when compared to the standards enjoyed in the metropoles. Finally, these new taxes did not apply equally to all colonial inhabitants or companies. In contrast to the imperial metropoles, where 'modern' taxes built on organically grown tax bases, fiscal 'modernity' and 'tradition' co-existed in a dualistic system in the colonies. In short, the adoption of ‘modern’ taxes was not necessarily part of a wider process of fiscal ‘modernization’. The comparison of fiscal development under colonial and sovereign rule helps to move beyond the Eurocentric bias in the historical tax literature and develop a more global theory of fiscal modernization.
