This paper contributes to our understanding of the factors that lead to the creation of a fiscal administration backed by centralized coercion through a historical and game theoretical analysis of colonial Mexico. In the model, the fiscal regime is endogenous: the ruler can choose to delegate the collection of revenue or to create a state administration. The essential trade-off is that the gains in efficiency under delegation come at a cost; collective objectives cannot be harmonized under delegation. The benefits others receive from someone's contribution cannot be internalized under delegation. The presence of an external shock that creates the need to provide a public good -- in my analysis a standing army due to a threat of conflict -- can give rise to a coercive state administration which serves as a commitment device to overcome free riding. The analysis suggests that the enforcement mechanism used to collect revenue is endogenous to the excludable nature of the goods provided by the state.