Predation, Taxation, Investment, and Violence: Evidence from the Philippines

The literature relating economic activity to political violence has greedy rebels (Collier; 2000) but not greedy governments. Yet capturing tax revenue might motivate governments to control territory; just as capturing extortion revenues motivates rebels. Panel data on political violence in the Philippines distinguish government from rebel attacks; which we link to private investment across 70 provinces. To formally explore these data we expand an established theory of asymmetric substate conflict –the “information-centric” model; by adding firms; investment; taxation and predation (i.e.; extortionary violence by rebels in response to investment) to the interplay of government; rebels and civilians; generating testable implications. Necessary conditions for predation are sufficient to imply “tax capture” (i.e.; violence by government in response to investment.) In the context of the expanded model; these results are consistent with tax capture and predation; and weigh against a dominant role for other mechanisms linking investment and violence; such as opportunity costs or a grievance-based mechanism. The data show that increases in investment predict increases in government attacks; as well as increases in rebel attacks. The “tax capture” response reverses in the following year.