201 The Journal of Economic History, Vol. 79, No. 1 (March 2019). © The Economic History Association. All rights reserved. doi: 10.1017/S0022050718000724 Seven Ağır is Assistant Professor, Department of Economics, Middle East Technical University, Ankara 06800, Turkey. E-mail: sevenag@metu.edu.tr. Cihan Artunç is Professor, Department of Economics, University of Arizona, Tucson, AZ 85721. E-mail: cartunc@email.arizona.edu. This article is supported by the European Commission under the Marie Curie Grant 2013ABH67840006 and the National Science Foundation under the grant NSF SES 1559273. We thank Ayhan Aktar, Dan Bogart, Amanda Gregg, Timothy Guinnane, Philip Hoffman, Kıvanç Karaman, Timur Kuran, Şevket Pamuk, Jean-Laurent Rosenthal, and Ali Cevat Tasıran for helpful comments and suggestions. We also thank Atacan Atakan, Burcu Belli, Semih Göktalay, and Ece Özçeri for excellent research assistance. This article was also circulated under the title “Political Economy, Firm Survival and Entrepreneurship: The Case of the Wealth Tax (1942).” 1 By the “Middle East,” we refer to the regions located in the Eastern Mediterranean and Western Asia, extending from Turkey to the Arabian Peninsula and from Egypt to Iran. The Wealth Tax of 1942 and the Disappearance of Non-Muslim Enterprises in Turkey Seven Ağır And CıhAn Artunç Turkey imposed a controversial tax on wealth to fnance the army in 1942. This tax was arbitrarily assessed and fell disproportionately on non-Muslim minorities. We study the heterogeneous impact of this tax on frms by assembling a new dataset of all enterprises in Istanbul between 1926 and 1950. We fnd that the tax led to the liquidation of non-Muslim-owned frms, which were older and more productive, reduced the formation of new businesses with non-Muslim owners, and replaced them with frailer Muslim-owned startups. The tax helped “nationalize” the Turkish economy, but had negative implications for productivity and growth. O ver the nineteenth century, the economic gap between Europe and the Middle East widened. 1 The Ottoman Empire—the region’s largest economy—fell behind the industrialized West. Within the region, Muslims lost competitiveness and largely disappeared from trade; reli- gious minorities—Greeks, Armenians, and Jews—came to enjoy a much larger share of the economy in Istanbul and other commercial centers in the Eastern Mediterranean (Kuran 2004; Artunç 2015). The Ottoman and later Turkish governments viewed Muslims’ disappearance from trade and industry as a critical element within the larger question of economic divergence, and the political elite was convinced that the creation of a Muslim-Turkish middle class was essential to achieve economic modern- ization and transition into modern economic growth (Toprak 1995).