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.