| This dissertation investigates how states decide between fiscal and monetary policy when they mobilize their financial resources for war. Its research was inspired by two empirical puzzles about the two world wars in the twentieth century. First, states financed significantly more of their expenditures with taxes during World War II than World War I. Second, liberal democracies were capable of collecting vastly more tax revenues than authoritarian states in both world wars.;The dissertation develops an institutional theory that specifies wartime financial authorities' fiscal preferences and capacity. First, their beliefs about the intrinsic political and economic costs of wartime inflation shape their preferences over taxation. Financial policymakers favor substantial increase in taxation only when they believe that wartime inflation is politically costly. Second, the supply of liberal democratic institutions determines the extent to which financial authorities can implement their desired tax increases. Party and legislative institutions enable liberal democracies to resolve taxatiods collective action problems among organized interests. The variations in financial policymakers' preferences and their political institutional environment explain the inter-temporal and cross-national variations during the two world wars of the twentieth century.;Empirical evidence from Germany, Britain, and the United States in the two world wars and Japan in the Second World War supports my hypotheses. In World War II, financial officials in Germany, Britain, and the U.S. did not believe that inflation entailed high political and economic costs, and did not support dramatic tax increases. In World War II, financial authorities in Japan, Germany, Britain, and the U.S. perceived the inherent political and economic costs of inflation, and supported substantial tax increases from the outset of the war. Moreover, British and American liberal democratic institutions resolved collective action problems among various organized interests, and enabled financial authorities to implement their tax increases much more effectively than in Germany and Japan.;This dissertation's theoretical innovation and empirical findings offer important insights for understanding the financial foundations of state power, origins of fiscal states, determinants of economic growth in postwar capitalist democracies, Japan's "transwar history," and rational and cultural approaches to institutional analysis. |
