Predation, Taxation, Investment and Violence: Evidence from the Philippines
AbstractThis 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.
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Date of creation: Aug 2013
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Find related papers by JEL classification:
- F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
- F54 - International Economics - - International Relations, National Security, and International Political Economy - - - Colonialism; Imperialism; Postcolonialism
- H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- N47 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Africa; Oceania
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-05 (All new papers)
- NEP-DEV-2013-08-05 (Development)
- NEP-PBE-2013-08-05 (Public Economics)
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