The historiography of the Yemen Arab Republic (YAR) has generally insisted that it was only in the 1970s and 80s that state structures took shape, since the revolution and civil war had made it impossible to create new government institutions during the 1960s. At the same time, much of the writing on the civil war itself, particularly in Arabic, has celebrated the ‘September Revolution’ as the birth of a new state, including a dozen new ministries, a larger central military and rising government income and expenditure. At first glance, these appear to be irreconcilable tendencies: did the central government gain in power and influence? Or was it paralysed, succumbing to fragmentation because of the war itself? The civil war, Saudi-Arabian support for the royalists and the extensive Egyptian presence in Yemen caused complex structural and institutional changes. Beginning from the idea that the history of the development of the state is in important measure the history of its income and expenditure—and the associated bargaining, conflict, institutions and practices—the paper traces the profound fiscal transformations wrought by the civil war. These have remained almost wholly neglected by scholarship to date. The paper reveals how external aid and the pressures of civil war prompted the YAR government to give up taxation. Tax receipts, even from thoroughly republican areas, plummeted. This prompted a broader retreat of public administration from towns and villages: the central government lost the ability to choose local judges and officials, even governors, in sharp contrast to accepted practice during the final years of the Imamate. Foreign loans, development aid, and import duties took the place of direct taxation. These external sources of funding allowed successive YAR governments to increase expenditure, grow the military and civil service, and increase salaries, even as tax receipts flatlined. Government institutions grew at the centre as they disappeared in the peripheries and government allocation reconstituted a minimum of central control through patronage. In this way, the examination sheds new light on the way in which the political economy of the YAR was profoundly altered by the civil war and on how and why the particular alliances between military and tribal actors took shape that came to define what Paul Dresch called the YAR’s ‘military-tribal-commercial complex.’ Moreover, the discussion raises interesting questions about, and challenges to broader literatures on rentierism, state-formation, and centre-periphery relations associated with the (post)-colonial gatekeeper state.