Predation, Taxation, Investment and Violence: Evidence from the Philippines

Eli Berman, Joseph Felter, Ethan Kapstein and Erin Troland

No 19266, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explores the relationship between investment and political violence through several possible mechanisms. Investment as a predictor of future violence implies that low private sector investment today provides a robust indicator of high violence tomorrow. "Rent-capture" or predation asserts that investment increases violence by motivating extortion by insurgents. A "hearts and minds" approach links investment to political violence in two possible ways: through an opportunity cost mechanism by which improved economic conditions raise the cost of rebel recruitment; and through a psychological "gratitude" effect which reduces cooperation of noncombatants with rebels. Finally, tax capture implies that government will increase coercive enforcement in an attempt to control areas where increased investment increases tax revenue. We lay out these mechanisms in a framework with strategic interaction between rebels, communities, government and firms within an information-centric or "hearts and minds" counterinsurgency model. We test these mechanisms in the context of the Philippines in the first decade of this century, using information on violent incidents initiated by both rebels and government and new data on industrial building permits, an indicator of economic investment. Increases in investment are positively correlated with both rebel and government initiated violence. In the context of our theory that constitutes unequivocal evidence of predation, is consistent with tax capture, and weighs against predictive investment, opportunity costs or gratitude being a dominant effect.

JEL-codes: F52 F54 H22 H25 H41 H56 K42 N47 O1 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-dev and nep-pbe
Note: DEV PE POL
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Predation, Taxation, Investment, and Violence: Evidence from the Philippines (2014)
Working Paper: Predation, Taxation, Investment, and Violence: Evidence from the Philippines (2012)
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