that state capacity is built over time as societies become more complex and demand public goods that only a state can provide, such as defense against external aggressors (Tilly, 1992; Besley & Persson, 2009). The driving force of state capacity in this research is citizen willingness to pay taxes to a state they regard as legitimate (Besley, 2020; Fergusson et al., 2020; Weigel, 2020). Consistent with this research, the survey data show improvements over time in citizens’ reports of actual payment as well as willingness to pay taxes so that local governments can develop their capacity. That is, the survey data suggests that state legitimacy to collect taxes has improved over time, as reflected in greater reports of compliance with taxes. The pattern of citizen responses also exhibit improvements in trust that local governments will deliver services and listen to citizen demands. Importantly, there is no difference in these survey measures of increasing trust in and legitimacy of the local state across the project and non-project areas. The data thus suggest that improvements in state capacity in Tanzania stem from endogenous changes in trust and legitimacy in the country rather than as a result of financial incentives offered by external partners.

This interpretation can be illustrated by examining a particular project component which targeted processes of oversight by and accountability to citizens. One-fifth of the performance score of LGAs under the project is allocated to indicators of consultation with citizens and disclosure of budget information for accountability (World Bank, 2012). In fact, this accountability and oversight component is the one where almost all project LGAs, 17 out of the 18, achieved the highest possible score by the time of their performance assessment in 2016-17 (World Bank, 2018b). Yet, we find no difference between project and non-project LGAs in the 2016 survey (as we might expect if project communities had already improved dramatically and non-project communities had not), nor in changes between 2016 and 2018, in household responses to questions about knowledge of public budgets and consultation by the local governments. That is, when measuring citizens’ self-reported knowledge of and engagement with local governments’ initiatives, we do not find evidence that the project improved citizen oversight and accountability. Citizens in non-project areas reported similar increases over time in knowledge about local government activities, and project areas showed no increases in self-reported indicators of citizen participation (e.g., whether they contacted any government officials or participated in meetings).

The evidence of a lack of value-added of an external project to endogenous processes of change within the country has linkages with several different strands of the literature on state capacity. First, it adds to the growing literature on state capacity in economic development (Acemoglu, 2005; Besley & Persson, 2009; Besley & Ghatak, 2005; Acemoglu et al., 2015; Dal Bó et al., 2013; Muralidharan et al., 2016; Fergusson et al., 2020; Besley, 2020; Bisin, 2020; Bowles, 2020; Papaioannou, 2020). Research examining how the current high income countries of the world built state capacity has concluded that the impetus came from growing demand in society for public goods such as defense against external aggressors, and for municipal infrastructure during the Industrial Revolution (Tilly, 1992; Besley & Persson, 2009; Lizzeri & Persico, 2004). In the case of low income, developing countries, research has found variation within and across countries of historical institutions of state capacity which continue to have persistent impact on 4