T Addison and M Murshed (2001)
25 pages (49 KB)
What are the fiscal dimensions of conflict? What are their implications for reconstruction? This paper by the United Nations University World Institute for Development Economics Research examines these questions using research on African conflicts.
Conflicts have fiscal dimensions and sometimes fiscal causes. These are always significant even when they are not the most important factor. Fiscal mismanagement weakens regime power by undermining tax revenue. This raises the relative deprivation of ethnic and regional groups, especially in resource-rich countries, and becomes a contributing factor to conflict. Corruption becomes rife as military spending increases. Donor relations and access to aid is damaged because sector-wide approaches cannot happen with high military spending. The fiscal impact of interstate wars is drastic, but that of modern civil wars is worse because state institutions are targets. Tax collection ceases, the tax base is reduced, and development spending virtually stops. Economic agents shift their focus to short term returns, including criminal and predatory activities. The study finds that:
- Rebels may be better at fiscal policy than governments. Popular support favours paying rather than evading rebel taxes.
- Post-war governments hope for a large peace dividend. But this is initially limited due to the high costs of demobilisation and reintegration. Positive effects are only forthcoming if peace holds.
- Civil and interstate conflicts have a regional impact. Neighbours' military budgets are pushed up due to legitimate defence concerns.
- Historically, interstate wars led to investments in state capacities to tax, manage budgets and issue debt. But in modern African interstate wars, institutions are inexplicably left to wither.
Broad reconstruction spreads benefits widely so that poverty is reduced. Narrow reconstruction occurs where societies elites consolidate their wartime gains, but the majority of the population is left behind. Effective fiscal institutions are crucial to broad reconstruction. Policy makers need to better understand the incentives of governments to improve fiscal institutions, and the role that conflict has in affecting their motivation. In order to achieve broad reconstruction there needs to be:
- Significant economic reform. The pre-war economic structure was probably weak due to major policy distortions, and likely to have been a contributing factor.
- Adequate aid to reduce the severity of policy trade-offs.
- Well-designed public subsidies to household investments. Many householders will have lost all their collateral during the war.
- Better regional peacekeeping, and more international commitment to United Nations peacekeeping. This will have substantial rates of return to development by cutting regional military spending, in addition to direct humanitarian benefits.
Source: Addison, T. and Murshed, M., 2001, The Fiscal Dimensions of Post-Conflict Reconstruction UNU/WIDER, United Nations University, Discussion Paper No. 2001/49