Adaptive Fiscal Capacity

Term

Adaptive Fiscal Capacity

Idea Level

Concept

Definition

Adaptive Fiscal Capacity (AFC) is a concept coined by Yuen Yuen Ang in 2025 that refers to the ability of a government to generate, manage, and adapt its portfolio of financial resources—tax and taxless alike—in response to evolving conditions.

In contrast to the conventional concept of fiscal capacity as a static measure of tax collection, AFC encompasses a state’s capacity to balance portfolios, absorb shocks, and learn from crises through flexible use of revenue instruments, credit, and assets.

Sources

First formal articulation:

Ang, Y.Y. “Fairy Tales of Western Development: The Non-Democratic Origins of Fiscal Capacity in Britain, the US, and China,” Chapter in Political Economy Rebooted (2026), posted on SSRN (2025).

Earlier articulation (concept not yet named):

Ang, Y.Y. How China Escaped the Poverty Trap (2016), Chapter 7, “The Revolution of Public Finance in Antebellum United States.”

Ang, Y.Y. “Taxless Fiscal States,” UNU-WIDER Working Paper (2022)

Genealogy

[Paradigm] AIM (Adaptive, Inclusive, Moral) Political Economy

→ [Primary Pillar] Adaptive

→ [Application - domain] Fiscal capacity

→ [Concept] Adaptive Fiscal Capacity

→ [Application to fiscal capacity]: Replace static, tax-centric narratives of fiscal capacity with a dynamic account that highlights crisis-repair cycles, portfolio management, and taxless finance

→ [Cases]:

o   Britain (17th–18th c.): land collateralization

o   United States (19th c.): charters, bonds, land grants

o   China (post-1990s): land finance & LGFVs

[Secondary Pillar] Inclusive: reveal multiple development pathways

[Secondary Pillar] Moral: expose varnished narratives (“fairy tales”) of Western state building

Concept Constellation

Across Ang’s work, Adaptive Fiscal Capacity co-appears with the following concepts and analytic themes:

• Fairy tales of western development

• Taxless finance

• Crisis–repair cycles

• Non-linear / coevolutionary development and state-building

• Market-building vs. market-preserving institutions

Contrast Table

Conventional vs. Adaptive Fiscal Capacity

(Source: “Fairy Tales of Western Development,” Table 4)

[Insert infographic]

Analytic & Policy Implications

The concept of Adaptive Fiscal Capacity changes the way we think about political economy and how developing countries can build fiscal capacity:

• Analyze fiscal capacity as portfolio management, involving not just tax collection, but also managing credit, assets, and monetization of land and monopoly rights

• Harness taxless finance for infrastructural investments while mitigating its risks

• Treat fiscal crises as learning moments rather than simply as failures

• Compare fiscal trajectories across countries at different development stages without assuming a single pathway or destination

Quotes

“When viewed from a coevolutionary perspective, it becomes clear that the United States did not in fact acquire a complete package of market-supporting institutions upon independence. Instead, the components of this package were evolved following independence, propelled by the economic depression that grew out of a period of rapid market building.”

– Ang, How China Escaped the Poverty Trap (2016), p. 232

“Adaptive fiscal capacity is increasingly vital for developing countries navigating a volatile global landscape, from trade wars, pandemics, to US-China competition for allies through infrastructural and investment schemes like China’s Belt and Road Initiative.”

- Ang, Fairy Tales of Western Development (2026)