%0 Report
%9 EIC working paper series
%A Belmonte, Alessandro
%A Teobaldelli, Désirée
%A Ticchi, Davide
%D 2018
%F eprints:3894
%I IMT School for Advanced Studies Lucca
%K Keywords: tax morale, state capacity, external threat, civil wars, dynamic complementarity,  culture and institutions.  -  JEL Classification: P16, H11, H26, H41
%N 3
%T Tax Morale, Fiscal Capacity, and Wars
%U http://eprints.imtlucca.it/3894/
%X This paper studies how mobilization for war motivates citizens to contribute to their  own community and therefore help forming tax morale in a constituency. We derive a  theoretical model to investigate government's decision to expand tax revenues from alternative  sources, namely changing the country's culture of tax compliance or expanding  fiscal capacity. Despite the two are initially substitute, we show how in equilibrium dynamic  complementarity arises. Our mechanism exploits exogenous variation in the cost of  tax morale formation, induced by an expected war (either internal or external) that makes  easier for the government to mobilize the constituency. We motivate our theory through a  novel cross-country analysis that uses information on war frequency, tax morale, and fiscal  capacity. We additionally discuss some historical cases consistent with our mechanism.