Week7_State_and_Markets_EH_LAC_2024_25

Question 1

What is the primary focus of Part I in the outline?

Answer 1

Introduction: Why the State?

Discusses the rationale behind the existence and role of the state.

Question 2

What are the main components of Part II: Pillars of Prosperity?

Answer 2

State capacity and development: Theory + Evidence

Examines the relationship between state capacity and economic development.

Question 3

What does Part III address regarding state formation?

Answer 3

Post-Colonial State Formation: State formation in Latin America + Lost Decades

Focuses on the historical context and challenges faced by Latin American states.

Question 4

What is a key conclusion from the document regarding institutions?

Answer 4

Institutions matter for development; they affect economic incentives

The effectiveness of institutions influences investment and innovation.

Question 5

How do Latin American institutions compare in terms of inclusivity and efficiency?

Answer 5

LA institutions are not inclusive nor efficient

They reflect the preferences of dominant elites and fail to provide good incentives/opportunities.

Question 6

What historical event significantly impacts state institutions in Latin America?

Answer 6

Colonization explains pro-elite (unequal) institutions

The legacy of colonialism has lasting effects on state structures.

Question 7

What does state capacity refer to?

Answer 7

State capacity = states ability to tax and provide public goods, property rights, education, infrastructure, etc.

Essential for a functioning state.

Question 8

What does the document suggest about the role of elites in state capacity?

Answer 8

Bad ‘extractive’ elites prefer ‘minimal’ states and resist taxes

This leads to a lack of support for public goods.

Question 9

What is a proposed solution to improve state capacity?

Answer 9

Change elites and establish a more progressive and active non-elite government

Encourages a shift in governance for better public service provision.

Question 10

What is a key problem identified with state oversight?

Answer 10

Lack of institutional ‘oversight’ (checks and balances)

This undermines states’ ability to commit to effective spending.

Question 11

What does state fragility signify?

Answer 11

Inability to tax, secure property, enforce order, and justice

A major factor in underdevelopment.

Question 12

What are the basic functions of the state?

Answer 12

• Monopoly of violence
• Collecting taxes
• Providing protection

These functions are fundamental for state legitimacy.

Question 13

What does the ‘naive institutional hypothesis’ suggest?

Answer 13

Bad elites extract citizens and dislike public goods and taxation

Highlights the negative impact of elite behavior on state capacity.

Question 14

What is the ‘sophisticated institutional hypothesis’?

Answer 14

Focuses on the complexities of elite behavior in relation to state functions

Suggests a deeper analysis of institutional dynamics.

Question 15

What is the significance of tax collection in state capacity?

Answer 15

Tax collection is at the core of state capacity

It funds public servants and services essential for governance.

Question 16

What are the consequences of weak state capacity identified in the document?

Answer 16

Corruption, informality, low taxation, civil war, and public inefficiency

These issues are prevalent in states with low capacity.

Question 17

What is the relationship between state capacity and public goods provision?

Answer 17

Weakness in state capacity leads to failure in providing key public goods

Essential for societal prosperity.

Question 18

What does the term ‘informality’ refer to in the context of state capacity?

Answer 18

Informality reflects the inability to enforce the law and limits tax collection

Often associated with weak governance.

Question 19

What is the role of the state in enforcing institutional frameworks?

Answer 19

State enforces the institutional framework, ensuring property rights and public order

Critical for long-term development.

Question 20

What does the document state about the effectiveness of states in the developing world?

Answer 20

Building a state capable of taxing, spending effectively, and enforcing contracts remains a huge challenge

Reflects ongoing struggles in governance.

Question 21

What are the main factors that determine fiscal capacity?

Answer 21

Fiscal capacity depends on:
* Tax System
* Fiscal Contract

Question 22

What does the tax system’s effectiveness in a state depend on?

Answer 22

The ability to extract tax revenues, especially via direct taxes to citizens and companies.

Question 23

What does the fiscal contract imply regarding citizens’ willingness to pay taxes?

Answer 23

Willingness to pay taxes depends on access to public services and perceptions of corruption.

Question 24

True or False: Institutional checks and balances enhance taxation.

Answer 24

True

Question 25

What is the relationship between fiscal capacity and social equality?

Answer 25

Fiscal capacity determines development and the capacity to provide public goods and ensure relative social equality.

Question 26

Fill in the blank: The _______ is at the heart of creating an effective state.

Answer 26

power to tax

Question 27

What historical event marked the beginning of the Haitian Revolution?

Answer 27

The 1791 Slave Revolt

Question 28

What was a significant consequence of the collapse of colonial governance in America?

Answer 28

Territorial and political fragmentation.

Question 29

What challenge did newly independent nations face regarding legitimacy?

Answer 29

Creating a new legitimacy and deciding who should rule.

Question 30

What was a common outcome of independence movements in Latin America?

Answer 30

Civil wars and competition for revenues and resources.

Question 31

What did the term 'juntas de gobierno' refer to in the context of Latin American independence?

Answer 31

Political organization during the independence movements.

Question 32

What is a key characteristic of the political order in post-colonial Latin America?

Answer 32

Creating order is a central task for establishing long-term economic growth.

Question 33

What does the term 'caudillismo' refer to?

Answer 33

Non-institutional rule often characterized by military leaders.

Question 34

True or False: Republican ideals in Latin America quickly led to stable democracies.

Answer 34

False

Question 35

What was one of the main reasons for the disorder in post-independence Latin America?

Answer 35

Destructive conflict rooted in independence struggles.

Question 36

Fill in the blank: Latin America fell behind the _______ in terms of economic development.

Answer 36

USA

Question 37

What was the main implication of the statement 'order is a public good that must be carefully constructed'?

Answer 37

Political order is essential for economic and political development.

Question 38

What was a significant factor contributing to the political instability in Latin America after independence?

Answer 38

Legacy of unequal colonial institutions.

Question 39

What did the independence leaders in Latin America primarily come from?

Answer 39

Colonial elites.

Question 40

What happened to voting rights in Latin America after initial independence?

Answer 40

Voting became increasingly restrictive.

Question 41

True or False: The first emperor of Brazil was Pedro I.

Answer 41

True

Question 42

What was a notable outcome of the Haitian Revolution?

Answer 42

It marked the first successful slave revolt in the Americas.

Question 43

What was the role of constitutions in post-colonial Latin America?

Answer 43

They were often not respected or did not endure.

Question 44

What does the term 'extractive institutions' refer to?

Answer 44

Institutions that extract resources and wealth from the population.

Question 45

What was the political situation in Brazil and Chile after independence?

Answer 45

Established centralized governments with limited incentives for economic expansion.

Question 46

Fill in the blank: The emergence of _______ governance in Latin America often secured de jure equality.

Answer 46

Republican

Question 47

What does the concept of 'popular sovereignty' entail?

Answer 47

The idea that the authority of a state is created and sustained by the consent of its people.

Question 48

What was the main effect of the Napoleonic occupation of Iberia?

Answer 48

It triggered revolutions in the colonies.

Question 49

What was a significant problem faced by newly independent nations in Latin America?

Answer 49

Resistance to taxes and conflict over spending.

Question 50

What is the main characteristic of Latin America during the early post-independence period?

Answer 50

Disorder prevailed for decades revealing the utter absence of institutional arrangements capable of establishing cooperation among rival groups. ## Footnote North and Weingast (2000) highlight the lack of institutional cooperation in Latin America post-independence.

Question 51

What were the sources of 'Republican' conflict in Latin America?

Answer 51

* Implosion of the fiscal and monetary union * Conflict over the prerogative to rule, tax, and spend * Form of the state - Federal or Centralized? * Social and economic mobilization for war * Increasing social, racial, and regional divide

Question 52

True or False: Liberal inspirations in Latin America consistently led to stable democratic governance.

Answer 52

False. ## Footnote Liberal inspirations quickly degenerated into conflict and/or authoritarianism.

Question 53

Fill in the blank: Sovereignty in the US is based on political representation (elections) and _______.

Answer 53

[citizenship]

Question 54

What was the approximate range of instability and civil wars in Latin America after independence?

Answer 54

30-50 years

Question 55

Which countries had relative income per capita data available from 1650 to 2018?

Answer 55

* USA * France * UK * Mexico * Peru * Chile * Brazil * Canada * Japan * China

Question 56

What was the GDP per capita of Brazil compared to the USA in 1900?

Answer 56

12% of USA

Question 57

What were the consequences of independence war debts on Latin American states?

Answer 57

* High independence debts * Erosion of capacity to pay back * Recourse to worse alternatives like printing money * Chronic fiscal deficits

Question 58

What factors contributed to low state capacity in Latin America?

Answer 58

* Low fiscal capacity * Fragmentation * Lack of legitimacy * Coercion

Question 59

True or False: High taxes on exports were the primary source of revenue for Latin American states.

Answer 59

False. ## Footnote The burden of taxation was mostly on imports.

Question 60

What was a significant impact of military expenses on Latin American states?

Answer 60

High and inelastic military expenses (70% or more) limited public investment and led to low productivity.

Question 61

What led to the chronic fiscal deficits in Latin America after independence?

Answer 61

* Continuous war mobilization * Low public investment * Lack of resources for private investments

Question 62

What was the role of trade taxes in Latin America?

Answer 62

Trade taxes put the burden on urban consumers and were mostly indirect taxes irrespective of income or wealth.

Question 63

Fill in the blank: The state disintegration in Latin America was driven by _______ and capital flight.

Answer 63

[war expenses]

Question 64

What historical context did Mexico face from 1825 to 1855 regarding its financial expenses?

Answer 64

High financial expenses as a percentage of revenues.

Question 65

What is indicated by the term 'Original sin' in the context of Latin American borrowing?

Answer 65

Borrowing in a currency that you cannot print.

Question 66

What were the effects of the 1825 crisis on foreign lending in Latin America?

Answer 66

Foreign lending was unavailable after the 1825 crisis.

Question 67

What was the average growth rate of Latin America from 2000 to 2018?

Answer 67

1.50%

Question 68

What happened to the fiscal capacity of new nations in Latin America post-independence?

Answer 68

Resources were drained by war and/or paying debts, leading to low state capacity.

Question 69

What were the implications of universal suffrage in Brazil?

Answer 69

Universal suffrage was only achieved in 1988, indicating limited voting rights for much of Brazil's history.

Question 70

What is a consequence of massive sales of land in concentrated bursts?

Answer 70

Lower fiscal returns for the government ## Footnote This situation arises when elites buy land as a safe asset due to uncertainty in the economy.

Question 71

Why do elites buy land during inflationary contexts?

Answer 71

To hedge against further price rises ## Footnote Land is considered a safe asset in an uncertain agro-economy.

Question 72

What happens to land prices in an inflationary context?

Answer 72

Prices fluctuate due to widespread speculation ## Footnote This speculation leads to increased concentration of land holdings.

Question 73

What is the relationship between low state capacity and market distortions?

Answer 73

Low state capacity and inflation lead to market distortions and speculation ## Footnote This can exacerbate economic instability.

Question 74

What are the effects of political fragmentation on markets?

Answer 74

Leads to disintegration of markets ## Footnote This disintegration can result from internal disorder.

Question 75

What fiscal pressures result from debt and war?

Answer 75

Limit state building and fuel conflict ## Footnote These pressures create a cycle of instability.

Question 76

What is the impact of protracted civil and international wars on state revenues?

Answer 76

It creates competition for revenues and seigniorage ## Footnote This competition can lead to increased military spending.

Question 77

How does military spending relate to overall state spending?

Answer 77

Inelastic military spending can account for 70% or more of total spending ## Footnote This prioritization can detract from state-building efforts.

Question 78

What is the vicious circle described in the context of war and debt?

Answer 78

War requires further debt, increasing the fiscal burden ## Footnote This cycle diverts revenues from state-building.

Question 79

What does low state legitimacy lead to in terms of taxation?

Answer 79

Resistance to taxes by the population, especially elites ## Footnote This resistance can result in institutional erosion.

Question 80

What is the result of weak states on conflict and governance?

Answer 80

Leads to conflict and strong personalist rule ## Footnote Weak governance can erode public trust and lead to instability.

Question 81

What fiscal burden is placed on consumers in a weak economic context?

Answer 81

Consumers face a fiscal burden with falling real income ## Footnote This burden often results from poor state capacity.

Question 82

What effect does inflation have on real fiscal revenues?

Answer 82

Erodes real fiscal revenues (Tanzi effect) ## Footnote This effect highlights how inflation impacts state income.

Question 83

What are the consequences of high interest rates on domestic capital markets?

Answer 83

Impaired formation of domestic capital markets ## Footnote High rates are often due to perceived risk rather than scarcity.

Question 84

What leads to low private investments and technological stagnation?

Answer 84

Poor fiscal and state capacity ## Footnote This stagnation can result from a lack of innovation and investment.

Question 85

Fill in the blank: Low investment and limited capital markets are due to _______.

Answer 85

crowding out and uncertainty (risk) ## Footnote This situation limits economic growth and development.