Hollowing Out the State

What explains variation in fiscal capacity over time and across sub-national units within the same country? In this dissertation, I argue that incumbent political elites, anticipating the redistributive consequences of democratization, can hollow out fiscal capacity. Places where such a phenomenon is likely to occur are those characterized by high levels of social-status inequality arising from historical inter-group segregation. I examine fiscal capacity in colonial Indian provinces and demonstrate that an exogenous episode of limited franchise expansion to lower-status groups was followed by a period of declining fiscal institutions. I use a novel historical dataset spanning 43 districts in the provinces of Madras and Bombay between 1914--1925 and qualitative evidence from legislative proceedings in the two provinces, and find that tax institutions declined in the districts with higher levels of status inequality, as opposed to inequality in wealth. This decline was more pronounced in the reform years, as upper-status groups anticipating the ascendance of lower-status groups into politics hollowed out tax institutions. Next, I examine a case of political mobilization in contemporary India and demonstrate that an announcement by the Government of India in 1990 to implement affirmative action for lower-status groups was followed by a rise in the right-wing vote share for the Bharatiya Janata Party after 1990. Using survey data and electoral data, I finds that both wealthy and poor upper-status Indians voted for the right-wing after 1990 in places where there was greater status inequality in 1931 -- a pattern that did not exist in previous elections. These findings provide evidence for the claim that when upper-status groups face threats to their social standing, cross-class solidarities emerge in support of anti-redistribution parties.