The Journal of Economic History · 2005 · 108 citations · 57 references
Public AffairsConstitutional LawPublic FinanceProperty TaxationPublic DebtTaxationFiscal ReformGovernment BorrowingState BorrowingState Constitutional HistoryState ConstitutionsState Public InvestmentBenefit-based TaxationConstitutional Borrowing Among StatesDemocratic Constitutional ChangeEarly State ConstitutionsExternal Government DebtJudicial Constitutional ChangePrivilegesState Government Debt
Between 1842 and 1852, eleven U.S. states adopted new constitutions that established procedures for issuing government debt and chartering corporations, while voters sought localized infrastructure investment without broad taxation. States addressed the conflict by creating innovative public finance schemes, such as tax‑less finance that leveraged borrowed funds and corporate privileges without new taxes, and benefit taxation that aligned property tax incidence with geographic investment benefits. Following the early‑1840s fiscal crisis, states amended their constitutions to prohibit future use of tax‑less finance.
Between 1842 and 1852, eleven states adopted new constitutions, simultaneously creating procedures for issuing government debt and for chartering corporations through general incorporation acts. Why simultaneously? Voters wanted geographically specific infrastructure investments but opposed geographically widespread taxation. States resolved the dilemma by developing several innovative public finance schemes. One, “taxless finance,” used borrowed funds and special corporate privileges without raising current taxes. Another scheme, “benefit taxation,” coordinated the incidence of taxes with the geographic benefits of investments through the property tax. After the fiscal crisis of the early 1840s, states changed their constitutions to eliminate taxless finance in the future.
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