NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Equilibrium Impotence: Why the States and Not the American National Government Financed Economic Development in the Antebellum Era

John Joseph Wallis, Barry R. Weingast

NBER Working Paper No. 11397
Issued in June 2005
NBER Program(s):   DAE   PE   POL

Why did states dominate investments in economic development in early America? Between 1787 and 1860, the national government’s $54 million on promoting transportation infrastructure while the states spent $450 million. Using models of legislative choice, we show that Congress could not finance projects that provided benefits to a minority of districts while spreading the taxes over all. Although states faced the same political problems, they used benefit taxation schemes -- for example, by assessing property taxes on the basis of the expected increase in value due to an infrastructure investment. The U.S. Constitution prohibited the federal government from using benefit taxation. Moreover, the federal government’s expenditures were concentrated in collections small projects -- such as lighthouses and rivers and harbors -- that spent money in all districts. Federal inaction was the result of the equilibrium political forces in Congress, and hence an equilibrium impotence.

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Document Object Identifier (DOI): 10.3386/w11397

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