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Endogenous Taxation in Ongoing Internal Conflict: The Case of Colombia

  • RAFAEL CH (a1), JACOB SHAPIRO (a2), ABBEY STEELE (a3) and JUAN F. VARGAS (a4)
Abstract

Recent empirical evidence suggests an ambiguous relationship between internal conflicts, state capacity, and tax performance. In theory, internal conflict should create strong incentives for governments to develop the fiscal capacity necessary to defeat rivals. We argue that one reason that this does not occur is because internal conflict enables groups with de facto power to capture local fiscal and property rights institutions. We test this mechanism in Colombia using data on tax performance and property rights institutions at the municipal level. Municipalities affected by internal conflict have tax institutions consistent with the preferences of the parties dominating local violence. Those suffering more right-wing violence feature more land formalization and higher property tax revenues. Municipalities with substantial left-wing guerrilla violence collect less tax revenue and witness less land formalization. Our findings provide systematic evidence that internal armed conflict helps interest groups capture municipal institutions for their own private benefit, impeding state-building.

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Corresponding author
Rafael Ch is a Graduate Student, New York University, Wilf Family Department of Politics, 19 West 4th St., Room 230, New York, NY 10009 (rafael.ch@nyu.edu).
Jacob Shapiro is a Professor of Politics and International Affairs, Princeton University, Woodrow Wilson School of Public and International Affairs, Princeton, NJ 08544 (jns@princeton.edu).
Abbey Steele is an Assistant Professor, University of Amsterdam, Department of Political Science. Nieuwe Achtergracht 166, 1018 WV Amsterdam (REC B building) (A.A.Steele@uva.nl).
Juan F. Vargas is a Professor of Economics, Universidad del Rosario, School of Economics, Calle 12C No 4 - 69, Of. 315, Bogotá (juan.vargas@urosario.edu.co).
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We benefited tremendously from excellent comments by Fernando Álvarez, Mario Chacón, Ursula Daxecker, Leopoldo Fergusson, Patrick Kuhn, Livia Schubiger, Pablo Sanguinetti, and seminar participants at CAF’s RED 2015 Workshop in Buenos Aires, the 2015 Empirical Studies of Conflict (ESOC) Annual Meeting, the Uppsala University Research Seminar, the conflict seminar at Konstanz University, the Amsterdam Conflict Club, and the 2017 Subnational State in Latin America Conference at the University of Amsterdam. We acknowledge generous funding from CAF-Development Bank of Latin America, ONR through Grant No. N000141310097, and AFOSR through Grant No. FA9550-09-1-0314. Dario Salcedo provided superb research assistance. Replication material is available on the American Political Science Review Dataverse: https://doi.org/10.7910/DVN/PCM2O2.

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American Political Science Review
  • ISSN: 0003-0554
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