I develop a model that introduces optimal taxation theory to the decision of armed groups to form states, and argue that the returns to such decision hinge on their ability to tax the local population. A sharp, exogenous rise in the price of a bulky commodity used in the video-game industry, coltan, leads armed groups to impose a “monopoly of violence” in coltan villages. A later increase in the price of gold, easier to conceal and hence more difficult to tax, does not. Results based on two alternative identification strategies are also consistent with the model. The findings support the hypothesis that the expected revenue from taxation, in particular tax base elasticity, is a determinant of state formation.
He is on the econ job market. Look at him closely.
Besides this being one of the most interesting political economy papers I’ve seen (and some seriously mind-blowing data collection) I’d rank it probably one of the 2-3 best empirical papers on conflict I’ve ever read.
In the last few years, most of the exciting political economy of development has been to understand how states move from warlord rule to high-capacity fiscal and bureaucratic systems. Just a few examples: Besley and Persson, Acemoglu and Robinson, North and Weingast. But politics and political economy doesn’t begin with warlords. It begins with much more primitive states and anarchy. What this paper does so marvelously well is introduce the logic of public finance to explain rebel governance and the emergence of primitive states.