Working Paper: CEPR ID: DP14981
Authors: Gema Laxmartinez; Dominic Rohner; Alessandro Saia
Abstract: Taxation may trigger social unrest, as highlighted by historical examples. At the same time, tax incomes could boost state capacity which may in turn foster political stability. Understanding better the a priori ambiguous taxation-turmoil nexus is particularly relevant for low-income countries today -- yet unfortunately any causal evidence on this has been very scarce. We exploit a unique policy experiment in 19th century Sicily to identify with the help of a regression discontinuity design (RDD) the effect of taxation on social unrest. It turns out that it is mostly the threat of taxation that may distort economic investment and ultimately result in higher levels of political turmoil.
Keywords: taxation; fiscal conflict; unrest; growth; regression discontinuity design; state capacity
JEL Codes: D74; H20; H26; J10; N43; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| threat of taxation (H26) | distorted incentives (H31) |
| distorted incentives (H31) | reduced growth (O40) |
| reduced growth (O40) | increased social unrest (P39) |
| introduction of the property tax (H71) | reduced likelihood of social unrest (P26) |
| municipalities just below the threshold (H70) | more episodes of social unrest (P39) |