How can we understand the emergence of income taxation and how can we explain the increased reliance on this source of revenue? How did state capacity develop in the 19th century and what revenue sources were most relevant? Based on data collected over the last two years we analyze subnational income and expenditure data from 1830 onwards in all Swiss cantons and show the effect of various political institutions on tax and expenditure regimes. We specifically analyze the extent of luxury taxes (a form of progressive indirect taxes, excise taxes). Finally, we present an analysis of the fiscal consequences - cantonal income and spending - of the introduction and extension of direct democratic institutions in the cantons. We thereby analyze whether there is an unconditional effect of institutional openness and cantonal finance policies. This analysis also allows us to address Matsusaka’s paradox - that before WWII spending is positively associated with direct democracy in the US but after WWII there is a negative relationship.
