External Threats Political Turnover and Fiscal Capacity

Document pages: 40 pages

Abstract: In most of the recent literature on state capacity, the significance of warsin state-building assumes that threats from foreign countries generate commoninterests among domestic groups, leading to larger investments in statecapacity. However, many countries that have suffered external conflicts don texperience increased unity. Instead, they face factional politics that oftenlead to destructive civil wars. This paper develops a theory of the impact ofinterstate conflicts on fiscal capacity in which fighting an external threat isnot always a common-interest public good, and in which interstate conflicts canlead to civil wars. The theory identifies conditions under which an increasedrisk of external conflict decreases the chance of civil war, which in turnresults in a government with a longer political life and with more incentivesto invest in fiscal capacity. These conditions depend on the cohesiveness ofinstitutions, but in a non-trivial and novel way: a higher risk of an externalconflict that results in lower political turnover, but that also makes aforeign invasion more likely, contributes to state-building only ifinstitutions are sufficiently incohesive.