Underlying Research
Abstract: The article builds a simple model to investigate how different types of armed conflict shape fiscal capacity: the state's ability to raise revenue from taxes. It starts from the simple observation that external war tends to generate common interests across groups in society, whereas internal, civil war entails deep conflicting interests across groups. Our model predicts that -compared to a society without conflict- civil wars lead to smaller investments in fiscal capacity, whereas prospects of external war generally lead to larger investments. Correlations in international data on conflicts and taxation are, by and large, consistent with these predictions.
Abstract: Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political derminants of these investments. The analysis illustrates that common interest public goods, such as fighting wars, as well as political stability and inclusive political institutions are conducive to building state capacity. Premilinary empirical evidence show that the correlations found in cross-country data are consistent with the theory.
Abstract: The absence of state capacities to raise revenue and to support markets is a key factor in explaining the persistence of weak states. This paper reports on an ongoing project to investigate the incentive to invest in such capacities. The paper sets out a simple analytical structure in which state capacities are modeled as forward looking investments by government. The approach highlights some determinants of state building including the risk of external or internal conflict, the degree of political instability, and dependence on natural resources. Throughout, we link these state capacity investments to patterns of development and growth.
Abstract: It is widely recognized that fragile states are key symptoms of under-development in many parts of the world. Such states are incapable of delivering basic services to their citizens and political violence is commonplace. As of yet, mainstream development economics has not dealt in any systematic way with such concerns and the implications for development assistance. This paper puts forward a framework for analyzing fragile states and applies it to a variety development policies in different types of states.
Abstract: This article offers a unified approach for studying political violence whether it emerges as repression or civil war. We formulate a model where an incumbent or opposition can use violence to maintain or acquire power to study which political and economic factors drive one-sided or two-sided violence (repression or civil war). The model predicts a hierarchy of violence states from peace via repression to civil war; and suggests a natural empirical approach. Exploiting only within-country variation in the data, we show that violence is associated with shocks that can affect wages and aid. As in the theory, these effects are only present where political institutions are noncohesive.
Abstract: Investments in fiscal capacity - economic institutions for tax compliance - are an important feature of economic development. This paper develops a dynamic model to study such investments and their evolution over time. We contrast a social planner's investment path with paths where political constraints are important. Three types of states emerge in the long run: (1) a common-interest state where public resources are devoted to public goods, (2) a redistributive state where additional fiscal capacity is used for transfers, and (3) a weak state with no transfers and a low level of public goods provision. The paper characterizes the conditions under which each possibility emerges and comparative statics wihin each regime.