A Note on War and Fiscal Capacity in Developing Countries

We examine the effect of war on state fiscal capacity in developing countries, measured by tax revenue to GDP ratios. In divided or factionalised societies, patronage may substitute for common interest public goods, with the possibility of violent contestation over a rent. Our dynamic panel empirical estimates of the determinants of fiscal capacity are applied to 79 developing countries, during 1980-2010. Results indicate that war, especially civil war, retards fiscal capacity, along with poor governance, oil dependence and macroeconomic mismanagement.