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Fiscal Incentives for Conflict: Evidence from India's Red Corridor

Abstract : Can tax regimes shape the incentives of governments to engage in armed conflict? India’s Maoist belt contains a large share of the country’s most valuable mineral deposits. Indian mining royalties benefit the States, but they are set by the central government. States are largely responsible for counter-insurgency operations within their territory. Therefore, the royalty regime could shape the incentive of states to support counter-insurgency efforts. This paper exploits the introduction of a 10% ad valorem tax on iron ore that was responsible for a 10-fold increase in royalty collections by the affected State governments. In a panel of district-level violence outcomes between 2007 and 2013, we find that the royalty hike was followed by a significant intensification of violence in districts with iron ore deposits compared to other areas. We also show that the higher royalty rates are followed by an increase in illegal mining activity, suggesting that the control of mineral resources underpins the observed intensification in violence.
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Submitted on : Monday, August 24, 2020 - 8:10:11 PM
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Jacob Shapiro, Oliver Vanden Eynde. Fiscal Incentives for Conflict: Evidence from India's Red Corridor. 2020. ⟨halshs-02921132⟩

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