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

The literature relating economic activity to political violence posits greedy rebels (Collier, 2000) but not greedy governments. Could capturing tax revenue motivate governments to step up their counter insurgency operations, just as extortion motivates rebel violence? 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, 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. The data show that increases in investment predict increases in both government-initiated attacks and rebel-initiated attacks. In the year following increased investment government attacks decrease. In the context of our expanded model, these empirical results suggest that both rebels and governments contest economic rents.