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(INTS KALNINS/INTS KALNINS/REUTERS)
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Economy Lab

Taxman's pen mightier than a witch's wand Add to ...

If you were a 17th-century European, you probably feared witches. They hid among your townspeople, flew on brooms, used magic powder and poisoned your livestock -- or so you believed.



The ensuing hunt for witches is a useful proxy for historical France’s ability to enforce a consistent, federal law, say two economists.



This is important because a state’s ability to enforce laws and collect taxes are key to economic prosperity, according to a recent paper from Noel Johnson and Mark Koyama of George Mason University.



At the end of the 16th century, the economists write, France was a patchwork of territories with no centralized legal or tax system. The French monarch made concessions to different local interests to buy their loyalties, with some provincial nobles reigning without much oversight from central authorities.



Witch trials thrived in villages with little judicial oversight. Trying a witch, after all, isn’t easy if you follow the letter of the law. Local prosecutors had a tough time proving an accused had conversations with demons and confessions were often extracted through torture. This prosecution was made harder if the state looked over your shoulder.



The trials were expensive, and there were dangers of a feedback loop as more trials led to a greater fear of witchcraft, which led to more trials. State officials therefore had a strong economic incentive to stamp out these supernatural prosecutions. (Although, the authors note, this had nothing to do with a reduction in the belief of witchcraft.)



As the state began fiscal consolidation in the 17th century, it cracked down on local courts and enforced tax collection. More revenue was raised and fewer witches were tried.



“Centralized legal institutions led to less judicial discretion, improved standards of evidence, and increasingly standardized law enforcement, and thus had the inadvertent effect of reducing the number of witches tried,” the economists write.



They found a statistically strong link between the rise of tax receipts and the fall of witch trials. They used France as it is the only country they found to have the necessary data on both witch trials and tax collection at the regional level during this critical time of development.



Tax enforcement is still an issue centuries later, even if the fear of sorcery is way down. The commissioner for the Internal Revenue Service warned the U.S. government in October that threatened budget cuts would have severe consequences. A reduction of $600-million would lead to billions in lost tax revenue, the commissioner predicted in a letter to Congress.



Some large corporations avoid paying taxes the legal way -- financial wizardry and loopholes. General Electric paid no corporate income tax in the United States from 2008 to 2010, despite more than $10-billion in profit, according to a recent report from American non-profit group Citizens for Tax Justice. Many in the Occupy Wall Street camp call that accounting a kind of magic. GE, however, called the report "innaccurate and distorted" and said it will pay a 30 per cent U.S. tax rate in 2011.



There is one distressing implication of the research. If Mr. Johnson and Mr. Koyama are right, it wasn’t the scientific revolution of Galileo and Copernicus that inspired Europeans to get smarter and ditch superstition. It was fear of the tax man.

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