Debt, Default, and Revenue Structure: The American State Debt Crisis in the Early 1840s
National Bureau of Economic Research, 1997 - Debts, Public - 45 pages
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
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American State Debts amount annual Antebellum auction duties Average bank capital bank stock Baring Brothers began capita debt capita revenues collecting Constitutional Restrictions costly counties creditors debt crisis debt issue debt per capita debt service deficit direct taxes Erie Erie canal expenditures fiscal fixed costs frontier fund future revenues Hampshire heavily on property Illinois imposed increase Indiana interest payments internal improvement investments investment income investors John Joseph Wallis land levy loans Louisiana Louisiana State University marginal benefit marginal cost curve Maryland and Pennsylvania Massachusetts McGrane Michigan Mississippi NBER Working Papers Ohio Ohio canal Pennsylvania and Maryland percent Peter Temin political costs Poll taxes property tax revenues property tax share public finance raise current taxes raise property taxes raise taxes Ratchford revenue sources revenue structure service the debt Sovereign Debt Sylla Table tax on bank taxation total revenues ultimately Union Bank University Press Whiskey Rebellion World Wide Web Worthington