TY  - JOUR
AU  - Grinath,Arthur, III
AU  - Wallis,John Joseph
AU  - Sylla,Richard
TI  - Debt, Default, and Revenue Structure: The American State Debt Crisis in the Early 1840s
JF  - National Bureau of Economic Research Historical Working Paper Series
VL  - No. 97
PY  - 1997
Y2  - March 1997
UR  - http://www.nber.org/papers/h0097
L1  - http://www.nber.org/papers/h0097.pdf
N1  - Author contact info:
John J. Wallis
Department of Economics
University of Maryland
College Park, MD 20742
Tel: 301/405-3552
Fax: 301/405-3542
E-Mail: wallis@econ.umd.edu

Richard Sylla
Stern School of Business, Economics
New York University
44 West 4th Street
New York, NY 10012-1126
Tel: 212/998-0869
Fax: 212/995-4218
E-Mail: RSYLLA@STERN.NYU.EDU
AB  - During the 1820s and 1830s, American state governments made large investments in canals, banks, and railroads.  In the early 1840s, nine states defaulted on their debts, four ultimately repudiated all or part of their debts, and three went through substantial renegotiations.  This paper examines how the states got into the debt crisis and, as a result of their earlier history, how they responded to fiscal pressure in the debt crisis.  The explanation is built around revenue structures.  States along the developed eastern seaboard were able to avoid politically costly property taxes, while states along the frontier were forced to rely heavily on property taxes.  When faced with fiscal pressures, two of the defaulting states -- Maryland and Pennsylvania -- were able to resume debt payments, with back interest, as soon as a property tax was enacted.  The other defaulting states, however, already had high property taxes.  Without access to new revenue sources, these states were forced to default, and then either renegotiate or repudiate their debts.
ER  -