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

Author

Listed:
  • Eli Berman
  • Joseph Felter
  • Ethan Kapstein
  • Erin Troland

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.

Suggested Citation

  • Eli Berman & Joseph Felter & Ethan Kapstein & Erin Troland, 2013. "Predation, Taxation, Investment and Violence: Evidence from the Philippines," NBER Working Papers 19266, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19266 Note: DEV PE POL
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    References listed on IDEAS

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    1. Eli Berman & Jacob N. Shapiro & Joseph H. Felter, 2011. "Can Hearts and Minds Be Bought? The Economics of Counterinsurgency in Iraq," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 766-819.
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    Cited by:

    1. Cortés Darwin & Montolio Daniel, 2014. "Provision of Public Goods and Violent Conflict: Evidence from Colombia," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 20(1), pages 143-167, January.
    2. Eli Berman & Mitch Downey & Joseph Felter, 2016. "Expanding Governance as Development: Evidence on Child Nutrition in the Philippines," NBER Working Papers 21849, National Bureau of Economic Research, Inc.

    More about this item

    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, Innovation, Technological Change, and Growth - - Economic Development

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