¹ Sinn, , “The Case for European Harmonization,” in Winkler, Georg, ed., Tax Harmonization and Financial Liberalization in Europe (New York: St. Martins Press, 1992), 5, 7.Google Scholar An overview of problems resulting from economic integration is found in Siebert, Horst, “Perspektiven zur Vollendung des europaischen Binnenmarkts,” Kyklos 42, no. 2 (1989).CrossRefGoogle Scholar

² Giovannini, Alberto, “National Tax Systems versus the European Capital Market,” Economic Policy 9 (October 1989).Google Scholar

³ Steinmo, , Taxation and Democracy (New Haven: Yale University Press, 1993)Google Scholar; Lee, and McKenzie, , “The International Political Economy of Declining Tax Rates,” National Tax Journal 17 (March 1989), 79–84.Google Scholar

⁴ Several authors considered the parallels between the Zollverein and the creation of the European Community in the late 1950s and early 1960s, including Fischer, Wolfram, “Der Deutsche Zollverein, die Europäische Wirtschaftsgemeinschaft und die Freihandelszone,” Eurofa-Archiv 5 (1961)Google Scholar; and the Introduction to Henderson, W. O., The Zollverein (London: Frank Cass, 1959).Google Scholar A more recent discussion can be found in Dumke, Rolf H., “Tariffs and Market Structure: The German Zollverein as a Model for Economic Integration,” in Lee, W. R., ed., German Industry and German Industrialisation (London and New York: Routledge, 1991).Google Scholar

⁵ Examples include Lijphart, Arend, ed., Presidential vs. Parliamentary Systems (Oxford: Oxford University Press, 1992)Google Scholar; and Taagepara, Rein and Schugart, Matthew Soberg, Seats and Votes (New Haven: Yale University Press, 1989).Google Scholar

⁶ Tiebout, , “A Pure Theory of Local Expenditures,” Journal of Political Economy 64 (October 1956), 416–24.CrossRefGoogle Scholar A more recent treatment is Frenkel, Jacob A.Razin, Assaf, and Sadka, Efraim, International Taxation in an Integrated World (Cambridge: MIT Press, 1991).Google Scholar For an introductory summary of the issues facing the European Union, see Commission of the European Communities, Report of the Committee of Independent Experts on Company Taxation (Luxembourg: Office for Official Publications of the European Communities, 1992).Google Scholar

⁷ This method is known as the source principle. Most industrialized states assess capital according to the residence principle, which taxes all income earned by persons residing in a given state, regardless of where the income is earned. States prefer this latter method because it should allow them to maintain different marginal tax rates; citizens pay the same tax rate regardless of where they invest. In order for the residence principle to operate in this manner, however, the state must have complete information on an individual's foreign holdings. If it is possible to hide income earned in certain states, then tax rates do affect investment decisions. A good summary is found in Kopits, George, “Overview,” in Kopits, ed., Tax Rate Harmonization in the European Community, International Monetary Fund Occasional Paper no. 94 (July 1992), 1–21.Google Scholar For a more technical discussion, see Frenkel, Razin, and Sadka (fn. 6), 21–42.

⁸ Margaret Levi assumes only that states maximize their revenue. The likelihood that states also want to attract the economic benefits from a given factor is not incompatible with the revenue-maximizing state. In both cases the government hopes to attract the movement of a given factor into its jurisdiction. Levi, , Of Rule and Revenue (Berkeley: University of California Press, 1988).Google Scholar

⁹ Giovannini (fn. 2), 368, also makes this point.

¹⁰ Hans-Werner Sinn compares the situation facing the European Union to a perverse insurance market. “A Europe with competing tax systems and unrestricted migration would be like an insurance market where the customers can select their company and pay the premium after they know whether or not a loss has occurred.” Sinn, , “Tax Harmonization and Tax Competition in Europe,” European Economic Review 34 (1990), 502.CrossRefGoogle Scholar

¹¹ Mecklenburg-Strelitz, Mecklenburg-Schwerin, and the three Hanseatic cities of Lübeck, Hamburg, and Bremen were not members of the Zollverein, while Luxembourg, which did not join the Reich, did participate in the customs union.

¹² Holtfrerich, Carl-Ludwig, “The Monetary Unification Process in Nineteenth-Century Germany: Relevance and Lessons for Europe Today,” in Cecco, Marcello De and Giovannini, Alberto, eds., A European Central Bank? Perspectives on Monetary Unification after Ten Years of the EMS (Cambridge: Cambridge University Press, 1989), 226.Google Scholar

¹³ Borchardt, Knut, “Währung und Wirtschaft,” in Bundesbank, Deutsche, Währung und Wirtschaft in Deutschland, 1876–1975 (Currency and economy in Germany, 1876–1975) (Frankfurt am Main: Fritz Knapp, 1976), 3–4.Google Scholar

¹⁴ Ibid., 20.

¹⁵ Agriculture under this definition includes forestry and fishery, while industry also covers handicrafts. Other sectors that Hoffmann considers are mining, transportation, trade, household services, other services including the military, and nonagricultural residences, each of which accounted for less than 10% of net national product in 1910—13. An interesting finding is that spending on the military dropped from 10.4% in 1875–79 (i.e., four years after the end of war with France) to 9.0% in 1910–13. It appears that military spending did not keep up with economic growth. Hoffmann, Walther, Das Wachstum der deutschen Wirtschaft seit der Mitte des 19. Jahrhunderts (The growth of the German economy since the middle of the nineteenth century) (Berlin: Springer-Verlag, 1965), 33.Google Scholar

¹⁶ Ibid., 772–74.

¹⁷ Quote in Kiesewetter, Hubert, “Economic Preconditions for Germany's Nation-Building in the Nineteenth Century,” in Schulze, Hagen, ed., Nation-Building in Central Europe (Lamington Spa: Berg, 1987), 89.Google Scholar See also Bazillion, Richard J., Modernizing Germany: Karl Biedermann's Career in the Kingdom of Saxony, 1935–1901 (New York: Peter Lang, 1990), 362.Google Scholar

¹⁸ In 1871 the railroads had 5.0 billion kilometers of personal transportation; in 1913 this figure had increased more than eightfold, to 41.4 billion. Hoffmann (fn. 15), 399–400.

¹⁹ In 1907, for example, just 40.5% of the two million residents of the capital city were native Berliners. The flight out of the countryside was just as dramatic; in the same year roughly one out of five born in the East Prussian provinces had moved on. Hoffmann (fn. 15), 180; Hohorst, GerdKocka, Jürgen, and Ritter, Gerhard A., Sozialgeschichtliches Arbeitsbuch: Materielen zur Statistik des Kaiserreichs, 1870–1914 (Social history workbook: Materials for statistics of the Kaiserreich period, 1870—1914) (Munich: Verlag C. H. Beck, 1975), 40, 19.Google Scholar

²⁰ The year 1873 is the first for which state tax systems reflect changes from the time of the unification of Germany, such as the transfer of tariffs to the national government, and is used as the initial comparison date instead of 1871.

²¹ Political institutions filter preferences that already exist in the population; if a given state is overwhelmingly rural, it will favor agriculture even if it has an open political system.

²² Schanz, Georg, “Der Reichshaushalt und das Finanzwesen der Einzelstaaten,” Finanxarchiv 13, no. 1 (1896), 89 fn. 3.Google Scholar

²³ A1% tax on sales value would represent a higher burden than a 1% tax on gross proceeds, because the land value always exceeded a given year's production; a 1% tax on gross proceeds would also be more onerous than a 1% tax on net proceeds, since a person paying a net tax could deduct input costs that a person paying a gross proceeds tax could not. It is therefore no surprise that Prussia's 4% tax on nex proceeds is higher than Bavaria's 1.67% tax on gross proceeds and Baden's .44% tax on the land's resale value.

²⁴ Metzger, Ulrike and Weingarten, Joe, Einkommensteuer und Einkommensteuerverwaltung in Deutschland (Income tax and income tax administration in Germany) (Opladen: Westdeutscher Verlag, 1989), 48, 314.CrossRefGoogle Scholar Although the tax became law in 1874, these rates were not actually levied in Saxony until 1878. The Prussian rates are available in Joseph A. Hill, Quarterly Journal of Economics 6, reprinted in Bullock, Charles J., Selected Readings in Public Finance (Boston: Ginn and Company, 1906), 257.Google Scholar

²⁵ The figures are available in the appendix.

²⁶ For a more detailed discussion of the taxes used and the distribution of the tax burden, see Hallerberg, Mark, “Tax Competition, Political Institutions, and Democratization: The Development of State Tax Systems in Wilhelmine Germany” (Ph.D. diss., University of California, Los Angeles, 1995).Google Scholar

²⁷ Steuerzahler, , Habt Acht!” Freisinnige Zeitung, September 9, 1907Google Scholar; trans, by the author.

²⁸ Key additions to these taxes included a mandatory declaration of one's income for higher-income individuals, governmental audits, and statutory penalties for underreporting income.

²⁹ “Übersicht der Ergebnisse der Einkommensteuer-Veranlagung fur das Steuerjahr 1913,” Nr. 31, Haus der Abgeordneten 22. Legislaturperiode, II. Session 1914, Rep. 77, Tit. 43, No. 89, Geheimes Staatsarchiv Preufiischer Kulturbesitz (hereafter cited as GStA), 23–24. Prussia's income minimum, which was high by German standards, was low compared with England's minimum of about 3,200 marks. The Social Democrats demanded in pamphlets that the German states adopt the English minimum; see, for example, Wurm, Emanuel, Die Finanzgeschichte des deutschen Reiches (The financial history of the German empire) (Hamburg: Erdmann Dubber in Hamburg, 1910), 69.Google Scholar

³⁰ Schremmer, D. E., “Taxation and Public Finance: Britain, France, and Germany,” Cambridge Economic History of Europe (Cambridge: Cambridge University Press, 1989)Google Scholar, 8:482.

³¹ There are several reasons why the data can be suspect, and the decrease in land tax rates may have been larger than what is estimated here. First, it is impossible to know with any certainty if a given state uniformly carried out land assessments. The timing of assessments also mattered—a state that regularly revised its records would have had a more burdensome tax than a state like Prussia, which did not commission a new land-tax assessment during the entire period, and the author could not locate assessment dates for all of the states. Figure 4 may therefore underestimate the decrease in real (as opposed to statutory) land tax rates from 1873 to 1914 if most of the states did not revise an assessment that they generally conducted between 1860 and 1875.

The figures in the graph indicate only the percentage of net value of proceeds; sales value rates are converted into net proceeds percentages by multiplying them by 77, which is their presumed proceeds value. Many supporters of agriculture within the Center Party and the two conservative parties asserted that the real multiplier was 25, and they successfully passed this figure into the assessment of the property tax in 1909. Prussian Finance Minister von Rheinbaben asserted that the true multiplier was 77, which was based on his ministry's estimates and are found in “Die Ergebnisse der Veranlagung des land- und forstwirtschaftlich benuzten Grundbesitzes zur Erganzungssteuer fur die Veranlagungsperiode 1902/04.” Sent from General Tax Director High Financial Councillor Wallach to Finance Minister von Rheinbaben. 12.2.06 Rep. 151 II Nr. 2013, GStA (fn. 29). If the true multiplier were closer to the one that the agricultural interests favored, then the conclusion that land tax rates both decreased and diverged would be stronger.

Finally, some states that passed a general property tax continued to levy the land tax. In most cases the land tax became a more or less dead appendage, since revisions of assessments did not occur after passage of the property tax. An exception was Saxony, and the Saxon land tax is included in the figures.

³² These differences are fairly small but not trivial. The tax assessed the total property that one owned and not that property's return (which the income tax was designed to address). Those who were liable to pay the tax usually owned many thousands of marks in property, and a change of .055% in the rate did affect one's tax bill. A person who owned a 50,000 mark estate paid 25 marks in tax in Saxony but 55 marks in Baden.

³³ Figure computed from Peter-Christian Witt, Die Finanzpolitik des Deutschen Reich von 1903 bis 1913 (The financial politics of the German empire from 1903 through 1913) (Lubeck and Hamburg: Matthiesen Verlag, 1970), 126 fn. 455.

³⁴ For instance, in 1914 one multiplied the production assessment by 25, then levied a tax of .055%; this meant that the owner of a piece of land that produced 10,000 marks of grain in 1873 would pay 400 marks of tax in 1873 but only 137.5 marks in 1914.

³⁵ See Warren, Donald, The Red Kingdom of Saxony: Lobbying Grounds for Gustav Stresemann, 1901–1909 (The Hague: Martinus Nijhoff, 1964), 75–76CrossRefGoogle Scholar; Bakes, Eugen, “Die deutschen Vermogensteuern,” Finanzarchiv 32, no. 2 (1915)Google Scholar, provides greater detail on the assessment methods the smaller states used, although some of his figures, such as the tax rate for Hesse, are clearly inaccurate.

³⁶ This tax cut, while appealing to the pocketbooks of the largest landowners, potentially also meant a loss of political power, since tax payments determined one's class in the three-class voting system. The Landtag assured that landowners did not lose any electoral strength when it passed legislation that stipulated that, for voting purposes only, landowners were treated as though they still paid the state levy. For a social democratic view of this practice, see Leinert, Robert, Die PreuJSischen Landtagswahlen (The Prussian parliamentary elections) (Berlin: Buchhandlung Vorwarts Paul Singer, 1913), 17.Google Scholar

³⁷ Witt (fn. 33), 22.

³⁸ Of the three parts of the welfare state that Bismarck introduced, that is, health insurance, accident insurance, and old-age pensions, the state contributed only to old-age pensions, and then only 50 marks per year. Kitchen, Martin, The Political Economy of Germany, 1815–1914 (Montreal: McGillQueen's University Press, 1978), 177CrossRefGoogle Scholar.

³⁹ For a persuasive discussion of how World War I changed this attitude, see Peacock, Alan T. and Wiseman, J., The Growth of Public Expenditure in the United Kingdom (Princeton, N.J.: National Bureau of Economic Research, 1961)Google Scholar.

⁴⁰ Seligman, , The Income Tax (New York: MacMillian Company, 1914), 331Google Scholar. He also made a similar statement for Italy: “Obviously an income tax running up to twenty per cent, to which all manner of other kinds of local taxes are to be added, would indeed be unendurable if enforced to the hilt” (p. 353).

⁴¹ See especially “Ausgleichung der einzelstaatlichen Einkommensteuergesetze. 1918,” Rep. 77 Tit. 43 Nr. 102, GstA (fn. 29); and “Steuerflucht. Abwanderung nach dem Ausland. Verhandlungen iiber die Einfuhrung eines Gesetzes gegen die Steuerflucht. 1918,” Rep. 151 II Nr. 2009, GstA (fn. 29).

⁴² I thank Susanne Lohmann for emphasizing this point to me.

⁴³ As mentioned before, Article 70 of the Reich Constitution stipulated that the national government could not run an ordinary budget deficit. If its revenues did not cover expenditures, the states were required to make up the difference in proportion to their populations.

⁴⁴ A succinct discussion of the politics behind the passage of the tariffs is found in Kitchen (fn. 38), 152–53.

⁴⁵ Prochnow, Peter-Michael, “Staat im Wachstum: Versuch einer finanzwirtschaftlichen Analyse der preuftischen Haushaltsrechnungen, 1871–1913” (State in growth: Attempt at a financial-economic analysis of the Prussian budget receipts, 1871–1913) (Ph.D. diss., University of Munster, 1977), 58–59Google Scholar.

⁴⁶ In 1912 the level of net transfers to the Reich had increased even more, to 51.9 million marks. Figures computed from Gerloff, Wilhelm, Die Finanz und Zollpolitik des deutschen Retches (The politics of finance and tariffs in the German empire) (Jena: Verlag von Gustav Fischer, 1913), 522–23Google Scholar.

⁴⁷ Ibid., 377.

⁴⁸ Fremdling, Rainer, “Freight Rates and State Budget: The Role of the National Prussian Railways, 1880–1913,” Journal of European Economic History 9 (1980), 34Google Scholar. Income tax figures are from Metzger and Weingarten (fn. 24), 305. Wilhelm Gerloff states that for the budget year 1893–94 Prussia grossed 1,522 million marks and spent 853 million, which implies a surplus of 669 million, but these figures probably exclude the repayment of railroad debt. Gerloff (fn. 46), 256.

⁴⁹ Although railroads became the principal source of income, the state had other businesses as well, including interests in porcelain and coal production, and it collected revenue from its considerable holdings of land. The figure is from Schremmer (fn. 30), 419.

⁵⁰ For a brief discussion of the plight of the small states, see Kruedener, Jürgen von, “The Franckenstein Paradox in the Intergovernmental Fiscal Relations of Imperial Germany,” in Witt, Peter-Christian, Wealth and Taxation in Central Europe (New York: Berg, 1987), 111–24Google Scholar.

⁵¹ See especially Geschenkron, Alexander, Economic Backwardness in Historical Perspective: A Book of Essays (Cambridge: Harvard University Press, 1962)Google Scholar.

⁵² Sinn (fn. 10), 502.

⁵³ Eichengreen, , Should the Maastricht Treaty Be Saved? Princeton Studies in International Finance, no. 74 (December 1992), 32–37Google Scholar; and Krugman, , “Lessons of Massachusetts for EMU,” in Torres, Francisco and Giavazzi, Francesco, eds., Adjustment and Growth in the European Monetary Union (Cambridge: Cambridge University Press, 1993), 241–61CrossRefGoogle Scholar.

⁵⁴ Sinn (fn. 1), 4.

⁵⁵ Rädler, Albert, “Where Does Tax Harmonization Stand Today?” EC Tax Review 4 (1993), 198–99Google Scholar.