‘In some historical periods, the immediate formative influence of the fiscal needs and policy of the state on the development of the economy and with it on all forms of life and all aspects of culture explains practically all the major features of events; in most periods it explains a great deal and there are but a few periods when it explains nothing.’ (Joseph Schumpeter, 1918)

Schumpeter’s point made almost a century ago, that the revenue base and policies of the state are closely connected has inspired a generation of scholars exploring the relationship between revenue collection and the nature of the state. The ‘new fiscal sociology’ as represented by Michael Mann, Charles Tilly, and Margaret Levi, among others, all in their different ways explore the dynamics of European state-making. They point to how taxation to finance war provided an incentive to bargain with tax payers to reach a fiscal contract that ensured compliance. Rentier state theories in many ways offer a mirror image of the fiscal contract theory: if revenue comes from extractive natural resources or aid, states will not have an incentive to enter into a fiscal contract with their citizens. As a consequence, there will not be what Mick Moore has called a ‘governance dividend’ of taxation.

There is a growing body of literature on how these patterns of state-building apply to low-income countries. First of all, interstate war is not present in the way it was when European states were in the making. This means that rulers do not have the same incentives to maximise revenues. Secondly, democracy, or its minimal version of regular competitive elections, is often introduced prior to the construction of well-established tax systems which gives bargaining about revenue a different character. On the basis of a case study of Zambia, for example, Lise Rakner and Odd-Helge Fjeldstad have shown that elections may serve to politicise the revenues from natural resources in a way so that they become part of a bargaining process between states and citizens. Hence, even if citizens do not pay tax, they may take part in the bargaining for revenue. Often, the causal processes identified in new fiscal sociology do not follow the patterns identified in low-income countries. The fiscal contract may be turned on its head, so to speak. 

Will Prichard has examined the conditions under which tax bargains occur. He identifies cases in sub-Saharan Africa where taxation leads to greater accountability. However, we still do not know much about the micro-foundations of revenue bargaining. We know little about the returns that materialise from the bargaining, and we know little about how revenue providers, actual or potential, affect government policy. Through a series of studies of instances of revenue bargaining, this project seeks to add to our theoretical and empirical knowledge about revenue bargaining processes in low-income countries with a particular focus on the returns: the decisions or non-decisions of powerholders.

Our conceptualisation of revenue bargaining hones in on political dynamics whereby the interests and power of members of government and of different revenue providers take center stage. A political settlement approach that conceptualises political dynamics fitting both democratic and non-democratic settings and that can include bargaining over both collective (public) and narrow goods (e.g. patronage). The political settlement approach helps us identify powerful organisations in society and their interactions with each other. Using a framework combining political settlement and fiscal contract theory, our research programme aims to offer a series of political economy analyses of specific bargains.