From Salt to Strife: Fiscal Fragmentation and Conflict

Abstract

How does fiscal fragmentation undermine state capacity? This paper studies how spatial heterogeneity in taxation can cause violent conflict and generate anti-state attitudes. We consider a mechanism whereby tax fragmentation creates sources of opportunity for the illegal economy, and thus conflict with the state. In the highly fiscally fragmented context of pre-revolutionary France, we document the frequent occurrence of conflicts related to smuggling concentrated in a bandwidth along internal fiscal borders. Revolution then triggers abrupt tax unification, as part of a larger program of radical state and nation building. Leveraging sharp and fuzzy RD designs, we study the way in which pre-revolutionary fiscal fragmentation shapes popular reactions to the new regime's policies, using data from the first revolutionary referendum and first-name choices from genealogical data. We find that stronger pre-revolutionary fiscal capacity generates polarization, increasing both the majority's refusal to support the regime through the referendum and a small minority's support to the regime through revolutionary first names. Then, we show that communities in the high fiscal capacity region that were exposed to conflict with the pre-revolutionary state due to smuggling opportunities oppose more to the revolutionary policies, for both electoral mobilization and first names. Tax fragmentation can thus create persistent anti-state attitudes.