From "Tax State" to "Debt State."

The paper is motivated by Joseph A. Schumpeter's "The Crisis of the Tax State." It inquires whether the buildup of government debt in peacetime-prosperity is a threat to the stability, existence of creation of viable "tax states." The paper begins by setting out Schumpeter's conception of the "tax state" and the nature of recent political-economic events which have reinvigorated the concept. Next, the paper sets out some simple debt dynamics and sketches a debt-induced business cycle arising from heavy reliance on debt finance in peacetime-prosperity. Finally, the paper assesses threats to the "tax state" in light of recent work on "path dependence" and positive feedback. An attempt is made to throw some light on whether the plethora of new, and often small, states spawned by the demise of communism can be viable "tax states."