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Endogenous Taxation in Ongoing Internal Conflict: The Case of Colombia

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  • Shapiro, Jacob
  • Steele, Abbey
  • Vargas, Juan
Abstract
Recent empirical evidence at the cross-country and subnational levels suggests that internal conflicts harm state capacity and tax performance. On the face of it this is odd: internal conflict should create strong incentives for governments to develop the fiscal capacity necessary to assert full control over their territory, just as sociological theories argue external conflict did. We argue that one reason for the pattern is that internal conflict enables groups with de facto power to capture local political and economic institutions. We test this mechanism in the case of Colombia using data on tax performance and institutions in each of Colombia’s 1,120 municipalities. We show that municipalities most affected by internal conflict have tax institutions consistent with the preferences of the parties engaging in violence. Those suffering right-wing violence feature higher total property tax revenues and more land formalization. Municipalities with substantial left-wing guerrilla violence collected less tax revenue and saw less land formalization. These outcomes translate into differential level of social investment and social outcomes. Our findings provide the first concrete evidence that internal armed conflict helps interest groups capture municipal institutions for their own private benefit.

Suggested Citation

  • Shapiro, Jacob & Steele, Abbey & Vargas, Juan, 2014. "Endogenous Taxation in Ongoing Internal Conflict: The Case of Colombia," Research Department working papers 763, CAF Development Bank Of Latinamerica.
    • Handle: RePEc:dbl:dblwop:763
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    Cited by:

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    4. Diana Ricciulli-Marín, 2020. "The Fiscal Cost of Conflict: Evidence from La Violencia in Colombia," Cuadernos de Historia Económica 53, Banco de la Republica de Colombia.
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    6. Deng, Hanzhi, 2021. "The merit of misfortune: Taiping Rebellion and the rise of indirect taxation in modern China, 1850s-1900s," Economic History Working Papers 108564, London School of Economics and Political Science, Department of Economic History.
    7. Morales, Juan S., 2021. "Legislating during war: Conflict and politics in Colombia," Journal of Public Economics, Elsevier, vol. 193(C).
    8. Mounu Prem & Andrés F. Rivera & Dario A. Romero & Juan F. Vargas, 2018. "Killing Social Leaders for Territorial Control: The Unintended Consequences of Peace," Documentos de Trabajo 16385, Universidad del Rosario.
    9. Mario Chacón, & Fabio Sanchez Torres, 2020. "El efecto de las transferencias sobre el recaudo fiscal local en Colombia, 2000-2015," Documentos CEDE 18344, Universidad de los Andes, Facultad de Economía, CEDE.
    10. Angulo Amaya, Maria Camila, 2024. "Criminal governance and public resources: The case of paramilitaries and health care provision in Colombia," World Development, Elsevier, vol. 179(C).
    11. Leopoldo Fergusson, 2019. "Who wants violence? The political economy of conflict and state building in Colombia," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 38(78), pages 671-700, November.
    12. Diana Ricciulli, 2020. "The Fiscal Cost of Conflict: Evidence from La Violencia in Colombia," Documentos CEDE 18537, Universidad de los Andes, Facultad de Economía, CEDE.
    13. Marina Nistotskaya & Michelle D'Arcy, 2021. "No taxation without property rights: Formalization of property rights on land and tax revenues from individuals in sub-Saharan Africa," WIDER Working Paper Series wp-2021-175, World Institute for Development Economic Research (UNU-WIDER).
    14. Leopoldo Fergusson & Pablo Querubin & Nelson A. Ruiz & Juan F. Vargas, 2021. "The Real Winner's Curse," American Journal of Political Science, John Wiley & Sons, vol. 65(1), pages 52-68, January.
    15. Barrett, Philip, 2022. "The fiscal cost of conflict: Evidence from Afghanistan 2005–2017," World Development, Elsevier, vol. 157(C).
    16. Abel Ezeoha & Anthony Igwe & Chinwe Okoyeuzu & Chibuike Uche, 2023. "The fiscal effects of armed conflicts in Africa," African Development Review, African Development Bank, vol. 35(4), pages 444-456, December.
    17. Camilo Nieto-Matiz, 2023. "Land and State Capacity During Civil Wars: How Land-Based Coalitions Undermine Property Taxation in Colombia," Journal of Conflict Resolution, Peace Science Society (International), vol. 67(4), pages 701-727, April.
    18. Gustav Agneman, 2022. "Conflict Victimization and Civilian Obedience: Evidence from Colombia," HiCN Working Papers 379, Households in Conflict Network.
    19. Agustín Goenaga & Oriol Sabaté & Jan Teorell, 2023. "The state does not live by warfare alone: War and revenue in the long nineteenth century," The Review of International Organizations, Springer, vol. 18(2), pages 393-418, April.
    20. Cheng, Hua & Gawande, Kishore & Qi, Shusen, 2022. "State capacity, economic output, and public goods in China," World Development, Elsevier, vol. 158(C).
    21. Ana Maria Diaz & Luz Magdalena Salas & Ana María Tribín-Uribe, 2020. "Hidden benefits of peace: The case of sexual violence," Borradores de Economia 1124, Banco de la Republica de Colombia.
    22. Abbey Steele & Livia I Schubiger, 2018. "Democracy and civil war: The case of Colombia," Conflict Management and Peace Science, Peace Science Society (International), vol. 35(6), pages 587-600, November.

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