This paper examines the effects of risk and transaction costs on the allocation of tax revenues, commonly known as the tax assignment problem: who should tax what and how in a multi-level system of government? Tax assignment was an important problem for the Ottoman state, which by mid sixteenth century had built a vast Empire that covered much of the Middle East, North Africa, and Eastern Europe. The Empire collected revenues from various types of taxes and assigned these revenues between the

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... ntral, provincial and district governments, and other recipients like fiefholders and pious foundations. Tax revenues were of two types, fixed taxes and variable taxes, which differed in their risk and transaction cost for the recipient. To understand how tax revenues were assigned, we examine how recipients varied in their capabilities to deal with risks and transaction costs. Formulating the competing implications of the risk and transaction cost explanations as testable hypotheses, we test them quantitatively with data from tax registers. The results show that in most regions tax assignment was influenced more by transaction costs than risks, suggesting that there were feasible alternatives for the recipients to insure against risk.