This paper examines the domestic and non-war related determinants of the expansion of direct taxation in an early democratic context. We argue that the reasons for this expansion can be found in the political competition between different elite groups in the context of industrialization. In contrast to the existing literature, we systematically differentiate between intra-elite competition in the economic and political arenas, which allows us to show that intra-elite competition in industrializing economies leads to higher levels of direct taxation only if the new economic elites are able to translate their economic power into the political arena, either by parliamentary or extra-parliamentary means. Finally, these processes are directly linked to public investment in policy areas related to the interests of new elites. Our analysis is based on novel subnational data from the period 1850 to 1910, enabling us to concentrate on the domestic determinants of direct taxation.