Wars and State Capacity

by

Timothy Besley and Torsten Persson

September 14

Abstract

The paper builds a simple model to invesrtigate 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, while 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, while prospects of external war generally lead to larger investments. Correlations in international data on conflicts and taxation are, by and large, consitent with these predictions.