Taxation and conflict

1
Taxation and conflict

• Fiscal Policy is often at the heart of conflict
  generation and resolution
• Pre-Conflict Incidence of tax and expenditure
• Sense of Being Exploited rather than
  neglect
• Need to know to what the structure of taxation
  may have contributed to conflict
• Rentier state versus merachnt state
• Weak fiscal Capacity of state to respond to
  social needs may be causal factor of conflict
• fluctuations in economic variables may cause
  uncertainty and conflict due to changing status
  and fortunes

2
The Long-term view

• Focus on both side of the balance sheet
• problem of crowding out the state by donors
• Need to reconcile the long-term developmental and
  short-run patronage-political approaches to
  exigencies of peacemaking - Security , political
  reform and building conflict management
  capacities
• Think of exit option - Both the urgency of needs
  and weakness of the state can lead to high levels
  of dependence that can become entrenched.
  (Marshall Plan)

3
Armed conflict can effects the fiscal accounts
4
Negative side

• disrupting economic activities by crowding out
  productive investment by state
• eroding the tax base
• lowering the efficiency of tax administration
• and distorting the composition of public
  spending.

5
Positive effect

• Willingness of citizen to pay tax (the Bellist
  or Charles Tilly argument)
• Greater Tax effort by state
• resource mobilization effect
• Ratchet effect

6
Neglect of Fiscus

• little awareness among policymakers of the links
  between the states ability to manage public
  resources and its ability to manage conflict.
• Importance of fiscal pacts as part of
  peace-building (South Africas sunset clauses

7
Importance of bringing Fiscal Policy on the
bargaining table

• Often the focus on Aid undercuts dialogue on
  mobilisation and allocation of national resources
• Problems of ability of the state to generate
  consensus around the allocation of scarce public
  resources.

8
Conditionality versus "Fiscal Pacts

• Temptation to use state weakness for imposing
  policies
• Overview of The World Banks, operations in El
  Salvador, Bosnia, and Uganda, and an of
  experiences in Cambodia, Eritrea, Haiti, Lebanon,
  Rwanda, and Sri Lanka. concluded that if tax
  effort and the pattern of public expenditures
  have a direct bearing on post-conflict
  reconstruction, as they did in El Salvador, it is
  legitimate to include these parameters in the
  conditionality agenda

9
Importance of Reconstruction and Growth

• Excessive focus on stabilisation
• IFI tendency to push the standard package of tax
  reduction even in crisis periods
• Assumption that good policies are always the
  same, the new argument is that since
  post-confect countries have poor policies, they
  should be given more aid simply because of their
  high

10
Taxation and Representation

• Higher citizens tax moral and representation
• Tax effort is often used as proxy for state
  caacity because citizen willingness to pay
  taxes is a measure of state legitimacy and a
  basis for citizens demand accountability.
• Importance of giving meaningful roles to organs
  of representation

11
What taxes?

• It depends on structure of economy
• Broad based rather isolated rents have better
  political economy consequences
• Tax progressivity and equity along both vertical
  and horizontal lines
• Trade taxes for ease of collection and political
  assertion of sovereignty
• Tax aid bonanzas

12
Importance of social policy

• Build new social contract
• Budget allocation decisions need to consider
  impact on horizontal inequalities, to avoid
  factionalism and destabilizing winner-take-all
  politics.
• Reduce immediate suffering and vulnerability but
  for both redistributive and productive arguments
  (human capital)
• To address some of the grievances that past
  fiscal practices may have generated
• Marshall Plan and the welfare state
• American pension scheme for the demobilised
• South Africas Sunset Clauses