Institutions, entrepreneurship, and the rationale of government: An outline of the Schumpeterian theory of the state

The Schumpeterian theory of the state parallels the theory of entrepreneurship in its concern with the institutional dynamism of capitalist development. The evolution of the modern state mirrors the emergence of a distinct sphere of self-interested economic activity in the private sector. While the state is concerned with the provision of common goods, its economic impact needs to be assessed with regard to the social interests that mark its relationship with the private sector. This holds for the evolution of fiscal systems as well as for other domains of government activity, involving the temporary carrying out of the entrepreneurial function.