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—including both tax revenue and taxless sources (such as credit, land, assets)—in response to evolving conditions.
In contrast to the conventional concept of fiscal capacity, which focuses only on tax collection and compliance, AFC conceptualizes fiscal capacity as portfolio management, emphasizing the ability to balance a variety of revenue instruments, absorb shocks, and learn from crises.
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). http://dx.doi.org/10.2139/ssrn.5661111.
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: Lessons from 20th-Century America and 21st-Century China,” UNU-WIDER Working Paper (2022)
Genealogy
[Paradigm] AIM (Adaptive, Inclusive, Moral) Political Economy
→ [ Pillar] Primary: Adaptive Political Economy
→ [Application] Fiscal capacity
→ [Concept] Adaptive Fiscal Capacity
→ [Application] Replace static, tax-centric narratives of fiscal capacity with a dynamic account that highlights crisis-repair cycles, portfolio management, and taxless finance
→ [Application] Demonstrated across comparative and historical cases
o Britain (17th–18th c.): land collateralization
o United States (19th c.): charters, bonds, land grants
o China (post-1990s): land finance & LGFVs
→ [Pillar] Inclusive: reveal multiple development pathways
→ [Pillar] Moral: expose varnished narratives (“fairy tales”) of Western state building
Quotes
[Revisit classic narratives of U.S. development] “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), “The Revolution of Public Finance in Antebellum United States,” p. 232
[Revisit democratic theories of state capacity] “This chapter revisits one of the grand narratives of political economy: that modern fiscal states emerged through representative democracies... This canonical story has long inspired efforts to boost tax compliance through democratic interventions, with foreign experts designing participatory taxation experiments in low-income countries, especially across Africa. In contrast, I uncover a powerful but largely hidden force behind state-building: taxless finance.”
[Introduce AFC] “Taking history seriously requires redefining fiscal capacity. In contrast to the conventional view of fiscal capacity as a static measure of tax collection, I introduce the concept of Adaptive Fiscal Capacity—the ability of states to manage a dynamic portfolio of tax-based and taxless financial sources.”
[Why AFC matters, especially today] “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.”
[Fiscal capacity in systems, not just as taxation] “Adaptive fiscal capacity situates taxation within a financial ecology that includes borrowing, credit, land, and market access—coordinated with growth strategies, industrial policy, and infrastructure investment. By recognizing the complementarity between fiscal and economic modernization and between taxes and debt, it illuminates how constrained societies can take the first steps toward transformation.”
- Ang, Fairy Tales of Western Development (2025/6)
Concept Constellation
Across Ang’s work, Adaptive Fiscal Capacity consistently co-appears with the following concepts and analytic themes: