Download Professor Thandika Mkandawire Chair in African

Taxation and conflict
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Fiscal Policy is often at the heart of conflict generation and
resolution
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Pre-Conflict Incidence of tax and expenditure
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Need to know to what the structure of taxation may have
contributed to conflict
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Sense of Being “Exploited” rather than “neglect“
Rentier state versus merachnt state
Weak fiscal Capacity of state to respond to social needs may be
causal factor of conflict
1. fluctuations in economic variables may cause uncertainty and
conflict due to changing status and fortunes
The Long-term view
• Focus on both side of the balance sheet
• problem of “crowding out the state“ by donors
• Need to reconcile the long-term developmental
and short-run patronage-political approaches to
exigencies of peacemaking - Security , political
reform and building conflict management
capacities
• Think of exit option - Both the urgency of
needs and weakness of the state can lead to high
levels of dependence that can become
Armed conflict can effects the fiscal
accounts
Negative side
• disrupting economic activities by “crowding
out” productive investment by state
• eroding the tax base
• lowering the efficiency of tax administration
• and distorting the composition of public
spending.
Positive effect
• Willingness of citizen to pay tax (the „Bellist“ or
Charles Tilly argument)
• Greater Tax effort by state
• ‘‘resource mobilization’’ effect
– Ratchet effect
Neglect of Fiscus
• little awareness among policymakers of the links
between the state’s ability to manage public
resources and its ability to manage conflict.
• Importance of “fiscal pacts as part of peacebuilding (South Africa’s “sunset clauses”
Importance of bringing Fiscal Policy
on the bargaining table
• Often the focus on Aid undercuts dialogue on
mobilisation and allocation of national resources
• Problems of ability of the state to generate
consensus around the allocation of scarce public
resources.
Conditionality versus "Fiscal Pacts”
• Temptation to use state weakness for imposing
policies
• Overview of The World Bank’s, operations in El
Salvador, Bosnia, and Uganda, and an of
experiences in Cambodia, Eritrea, Haiti,
Lebanon, Rwanda, and Sri Lanka. concluded
that “if tax effort and the pattern of public
expenditures have a direct bearing on postconflict reconstruction, as they did in El
Salvador, it is legitimate to include these
parameters in the conditionality agenda”
Reconstruction and
Growth
• Excessive focus on stabilisation
• IFI tendency to push the standard package of
tax reduction even in crisis periods
• Assumption that “good policies” are always the
same, the new argument is that since postconfect countries have “poor policies”, they
should be given more aid simply because of
their high
Taxation and Representation
• Higher citizens’ tax moral and representation
• Tax effort is often used as proxy for state caacity
because citizen willingness to pay taxes is a
measure of state legitimacy and a basis for citizens
demand accountability.
• Importance of giving meaningful roles to organs
of representation
What taxes?
• It depends on structure of economy
• Broad based rather “isolated” rents have better
political economy consequences
• Tax progressivity and equity along both vertical
and horizontal lines
• Trade taxes for ease of collection and political
assertion of sovereignty
• Tax “aid bonanzas”
Importance of social policy
• Build new “social contract”
• Budget allocation decisions need to consider impact on
horizontal inequalities, to avoid factionalism and destabilizing
“winner-take-all” politics.
• Reduce immediate suffering and vulnerability but for both
redistributive and productive arguments (human capital)
• To address some of the grievances that past fiscal practices may
have generated
– Marshall Plan and the welfare state
– American pension scheme for the demobilised
– South Africa‘s “Sunset Clauses“