Tax Morale, Fiscal Capacity, and Wars

Alessandro Belmonte, Désirée Teobaldelli and Davide Ticchi ()

No 03/2018, Working Papers from IMT School for Advanced Studies Lucca

Abstract: This paper studies how mobilization for war motivates citizens to contribute to their own community and therefore help forming tax morale in a constituency. We derive a theoretical model to investigate government's decision to expand tax revenues from alternative sources, namely changing the country's culture of tax compliance or expanding fiscal capacity. Despite the two are initially substitute, we show how in equilibrium dynamic complementarity arises. Our mechanism exploits exogenous variation in the cost of tax morale formation, induced by an expected war (either internal or external) that makes easier for the government to mobilize the constituency. We motivate our theory through a novel cross-country analysis that uses information on war frequency, tax morale, and fiscal capacity. We additionally discuss some historical cases consistent with our mechanism.

Keywords: tax morale; state capacity; external threat; civil wars; dynamic complementarity; culture and institutions (search for similar items in EconPapers)
JEL-codes: H11 H26 H41 P16 (search for similar items in EconPapers)
Pages: 44
Date: 2018-02, Revised 2018-02
New Economics Papers: this item is included in nep-cdm, nep-iue, nep-pbe and nep-pub
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Published in EIC working paper series

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http://eprints.imtlucca.it/3894/1/EIC_WP_3_2018.pdf First version, 2018

Related works:
Journal Article: Tax morale, fiscal capacity, and war (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ial:wpaper:3/2018

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