When Raising Revenue Threatens Legitimacy: Lessons from the French Salt Tax

Tax collection is fundamental to state capacity. Yet efforts to strengthen enforcement can backfire dramatically and threaten the legitimacy of the state. My job market paper (joint with Eva Davoine and Igor Kolesnikov) shows that aggressive tax enforcement generated widespread social conflict in 18th-century France, a finding that resonates with modern tax policy concerns in both low and high income countries.

The Challenge of Building Fiscal Capacity

Developing countries today still struggle to build effective tax systems. Early modern rulers faced similar challenges. Under pressure from military threats and constrained by limited administrative capacity, raising revenue meant difficult trade-offs. Since they lacked the technology to scale up efficient income and property taxation systems, they turned to consumption taxes on goods with inelastic demand.

Salt was an ideal tax target. It was crucial for food preservation, demand was highly inelastic, and the state could monopolize its production and distribution. This is why salt taxation is ubiquitous in the preindustrial period (think of Gandhi’s famous salt march). In 18th-century France, the salt tax generated about 15% of government revenue, and represented the equivalent of roughly 5% of household income for ordinary peasants in the most taxed regions, similar to what Americans spend on gasoline today.

However, the French monarchy only had full tax authority in the central region around Paris. Historical privileges meant other regions paid far less or nothing at all. In 1781, salt prices ranged from $0.80/kg in tax-exempt Brittany to over $33/kg in the high-tax region, a forty-fold difference (we convert historical monetary units to 2024 dollars using gold content). These stark disparities fueled widespread smuggling: smugglers could buy salt in low-tax regions and resell it in high-tax areas at prices below the official rate, pocketing the difference.

A Natural Experiment in Tax Enforcement

Our study exploits a unique historical reform to identify the political costs of tax enforcement. Between 1733 and 1742, the French state created special courts specifically to prosecute smugglers. These courts replaced local judges, who sympathized with smugglers, with centrally-appointed ones, expedited trials, and applied harsh penalties (galley service and death sentences) far more consistently than ordinary courts.

Critically, enforcement concentrated in the high-tax region where smuggling was easier to detect. Anyone caught with excess salt outside designated purchase days was presumed to be smuggling. This geographic variation, combined with the timing of the reform, allows us to implement a difference-in-discontinuities design, comparing municipalities just inside versus just outside the high-tax region, before and after the enforcement crackdown.

We draw on an extraordinary database of social conflicts in the 17th and 18th centuries, which classifies each event by type. This allows us to isolate roughly 1,900 conflicts specifically related to salt smuggling. Using the text descriptions of the conflicts, we distinguish confrontations between smugglers and tax collectors from those where local populations actively sided with smugglers against the state.

The Political Consequences: A Massive Increase in Conflict

Tax enforcement led to a twenty-fold increase in smuggling-related conflicts in high-tax municipalities. Critically, these were not just clashes between smugglers and authorities; local populations intervened to rescue arrested smugglers or retaliate against tax collectors. Although many events involved only a small number of people, in one instance, women and men armed with pitchforks assembled in crowds of hundreds to free captured smugglers, triggering rebellion in neighboring villages.

Several features validate our design. First, we observe four decades of parallel trends before the reform: there was no difference in conflict between regions at the border until enforcement intensified. Second, we find no similar effects for other types of social conflict. Third, the effect increases with proximity to the new courts, confirming the mechanism.

The impact persisted until the French Revolution. Using grievance lists sent to King Louis XVI in 1789, we find salt tax complaints were more frequent than any other tax type. High-tax regions complained about the salt tax nearly twice as often as low-tax regions. In addition, parliamentary records show representatives from high-tax areas disproportionately supported abolition in 1790.

Why Did Higher Enforcement Generate More Conflict?

Suppressing smuggling meant eliminating the supply of cheap contraband salt, forcing populations to pay exorbitant official prices. We confirm this by examining heterogeneity along the border. Where price differences were highest (up to $31/kg), conflicts increased dramatically. Where differences were small (under $20/kg), the reform had no effect; smuggling wasn’t profitable enough to motivate resistance. This “convex” relationship identifies the highest “conflict-free” price: $21/kg, about 38% lower than the status quo.

Quantifying Political Costs: A Revealed Preference Approach

How much were these conflicts “worth” to the state? Following a methodology developed by Jacques Necker, Louis XVI’s finance minister, we estimate counterfactual government revenue if salt prices had been set instead to the highest rate possible that would not trigger conflicts, i.e. the highest “conflict-free” price.

Setting the high-tax region price at $21/kg would have reduced salt tax revenue by 13%. Since the monarchy maintained higher prices despite persistent conflict, revealed preferences suggest political costs were less than this 13% revenue loss. This provides an upper bound: eliminating smuggling-related conflict would have cost the state at most 13% of salt tax revenue.

Necker proposed a more drastic cut to $14/kg, which would have reduced revenue by 30%. According to our previous result, Necker’s price would have been sub-optimally low. We also explore full tax harmonization: eliminating all regional differences would have required setting a uniform price of $9/kg, maintaining existing revenue while eliminating smuggling entirely. Napoleon successfully implemented a similar harmonized rate in 1806 at $5/kg, after revolutionary state-building broke resistance in previously privileged regions.

Lessons for Modern Development

This historical episode offers three key insights for contemporary policy.

First, administrative capacity alone isn’t enough. The French state built sophisticated enforcement infrastructure: special courts, thousands of anti-fraud police, harsh penalties. Yet this machinery generated massive resistance precisely because the taxation was extractive and unfair. Low-income countries face similar challenges when strengthening tax systems without corresponding improvements in governance or public goods provision.

Second, flaws in the tax design can create conflict. Inequalities in tax rates between French provinces generated not just evasion but also violence. Modern experience offers countless instances where inadequate or poorly structured taxation has fueled social and political conflict.

Third, short-term revenue maximization can threaten long-term stability. The French monarchy prioritized immediate revenue over political sustainability. The 1789 uproar over the salt tax shows how rulers can underestimate the long-term political costs of unpopular levies. Modern governments risk the same when focusing narrowly on revenue: in 2018, French fuel tax hikes sparked the Yellow Vest protests, and in Kenya in 2024, proposed taxes on essentials triggered nationwide youth-led protests and violent clashes.

Conclusion

Building fiscal capacity is essential for development. But our research demonstrates that how states collect taxes matters as much as the amounts they collect. Aggressive enforcement without legitimacy can fuel conflicts and undermine state authority. The French Revolution ultimately abolished the salt tax in 1790, but only after a century of resentment had accumulated.

Joseph Enguehard is a PhD candidate at ENS de Lyon. This paper is joint with Eva Davoine and Igor Kolesnikov, both PhD students at UC Berkeley.