War, State Capacity and Political Concessions in Italy: evidence from 1862-1965

This thesis examines the relationship between war, state capacity, political concessions, and the development of welfare-related public expenditure in Italy between 1862 and 1965. The central question is whether military conflict acted merely as a temporary fiscal shock or whether it contributed to persistent changes in the size and composition of the Italian state. The analysis combines a theoretical model with historical empirical evidence. The model describes a ruler who allocates resources between private consumption, military expenditure, civilian public goods, investment in state capacity, and political concessions while facing the threat of revolt. War affects both the economic and political constraints of the ruler: it reduces available resources, increases the value of military spending and state capacity, and may induce political concessions when the population’s participation constraint becomes binding. The model therefore links the guns-versus-butter trade-off, the bellicist theory of state formation, and political-economy theories of democratization and redistribution. Empirically, the thesis constructs a long-run annual dataset for Italy covering public expenditure, military spending, social expenditure, ordinary revenues, public debt, inflation, electoral participation, state-capacity proxies, and war episodes. The empirical strategy relies on local projections to estimate the dynamic response of fiscal, political, and administrative variables to war shocks, distinguishing between small and large conflicts and between war onsets and war endings. The results show that large war onsets generated sharp increases in total public expenditure, but these effects were largely driven by military spending and tended to dissipate after mobilization ended. The evidence for a permanent aggregate ratchet effect is therefore limited. Social expenditure displays more delayed and nuanced responses, especially after large conflicts, but these effects are not strongly persistent. Political concessions, proxied by changes in the electorate share, appear concentrated around the end of large wars, while evidence for war-induced increases in fiscal and administrative capacity is mixed and relatively weak. Overall, the Italian case suggests that war mattered for public finance mainly through temporary military mobilization and post-war adjustment. The mechanisms linking war to welfare expansion through state capacity and political concessions are theoretically plausible and historically relevant, but the empirical evidence does not support a strong causal interpretation. War may open windows of fiscal and political transformation, but whether these windows produce a durable welfare state depends on broader institutional and political conditions.