Ethnic Minorities, Interstate War, and Popular Support for Fiscal Capacity Development

Abstract

Do ethnic majorities and minorities have diverging preferences for fiscal capacity? Do these preferences converge during national emergencies such as interstate war? In this paper, we provide evidence from a natural experiment to demonstrate that politically salient minority-majority divisions undermine the development of fiscal capacity. In addition, we show that the pressure of interstate war is insufficient to supersede differences in support for the expansion of state’s capacity for taxation between majority and minority groups. More specifically, we employ a regression discontinuity design using a natural border that separates linguistic groups and municipality outcomes of a popular vote on the introduction of direct taxation at federal level in Switzerland during the First World War. The findings suggest that salient minority-majority divisions have a negative effect on the expansion of states’ capacity for taxation even during periods of interstate war.

Rallying Fiscal Patriotism: War Taxes in the Contemporary World

“…This could indicate, in line with the reasoning above, that it is the consent of government constituents that matters – not that of potentially antagonistic and peripheral minorities. However, it could also support the argument of Walter & Emmenegger, 2023, whereby minorities can be swayed by war-time fiscal patriotism – but only as long as the tax is targeted and non-permanent. Third, the coefficient for Oligarchy – capturing disproportionate political influence by the economic elite – would indicate a slight negative association, in line with, for example, Centeno (2002).…”

“…14 Second, ethnic fragmentation, particularly when accentuated by war, could inhibit fiscal patriotism (Herbst, 1990, p. 129). On the other hand, as argued above, what matters most acutely for the government is the consent of its (ethnic) constituentsnot peripheral minorities (but see also Walter & Emmenegger, 2023). Nonetheless, a variable counting the number of politically relevant ethnic groups is adopted from EPR data (Vogt et al, 2015).…”

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“…Throughout history, wars have caused the division of nations, especially after world wars (Walter and Emmenegger 2022;Romain 2007;Kaufmann 1996). As a result, the new states had to guarantee the rights of non-majority communities and establish institutional protection mechanisms (Daci 2017).…”