If I've understood things correctly, in the tax farming system, the tax farmer remits a pre-defined sum to the state and takes the rest of the revenue for himself. I feel this would obviously lead to exorbitant taxation and eventually economic decline, since it's in the personal interest of the tax farmer to tax as much as possible before his term runs out.
Wouldn't a better solution have been for the state to appoint bureaucrats who are given a fixed salary and collect just the pre-defined sum, like they did in East Asia AFAIK?
I've asked my professors about this, and they said the state's benefits are:
But I still can't help but feel that both benefits are overshadowed by the very obvious fact that this creates a massive incentive for tax farmers to extort the peasantry as much as possible.
I feel this would obviously lead to exorbitant taxation and eventually economic decline, since it's in the personal interest of the tax farmer to tax as much as possible before his term runs out.
Yes, your instinct is correct.
Wouldn't a better solution have been for the state to appoint bureaucrats who are given a fixed salary and collect just the pre-defined sum, like they did in East Asia AFAIK?
Funny thing is, the Abbasids started out that way and then switched to tax farming.
I'm familiar with the Islamic Middle East (i.e. Oxus to Nile to Bosporus) so I'll restrict my answer to that, but even there it's hard to give a precise answer to your question, because the practice of tax farming extended over such a long period of time in some areas, notably Egypt but not just there. It doesn't seem to be motivated by a set of specific circumstances but rather something systemic.
I agree with your professors. It really came down to financial incentive, I think. A professor in grad school used the analogy of the City of Chicago which at the time was considering privatizing its parking meter collection. That's essentially a form of tax farming (or rather fee farming), and the incentive obviously was that the city would save money, at least in the short run.
Don't look at it from the point of view of an abstract and long-lived "state". Look at it from the point of view of the guy who's sultan/wazir/amir right now. He's just thinking about this year and next year. He's not thinking about the poor schmuck who'll be in charge 30 years from now, let alone the well-being of peasants who haven't even been born yet.
I know of one attempt to rectify the situation. At the end of the 1600s the Ottomans made a rule that only existing tax-farmers and their descendants could continue to buy tax farms, the idea being that they would be in charge for the longer term and would have a greater incentive to tax sustainably. It didn't work for several reasons, one being that tax farmers typically used subcontractors to do their collection.
All of the above notwithstanding, tax farming was not the only revenue model in the medieval Islamic Mideast. Another common one, and often the more important one, was the iqta, where the man who received the land grant was responsible for maintaining a military force of a certain size. It was a way of funding the military by having tax revenues go directly to the military in a region rather than going through the capital.