Ethnic Minorities, Interstate War, and Popular Support for Fiscal Capacity Development

• Published date: 01 August 2023
• DOI: http://doi.org/10.1177/00104140221139375
• Author: André Walter,Patrick Emmenegger
• Date: 01 August 2023
• Subject Matter: Articles

Article

Comparative Political Studies

2023, Vol. 56(9) 1365–1397

© The Author(s) 2022

Article reuse guidelines:

sagepub.com/journals-permissions

DOI: 10.1177/00104140221139375

journals.sagepub.com/home/cps

Ethnic Minorities,

Interstate War, and

Popular Support for

Fiscal Capacity

Development

Andr´

e Walter

1

and Patrick Emmenegger

2



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.

Keywords

ethnic divisions, experimental research, political economy, state building,

taxation, war

1

Department of Political Science, University of Zurich, St. Gallen, Switzerland

2

Department of Political Science, University of St. Gallen, Switzerland

Corresponding Author:

Andr´

e Walter, Department of Political Science, University of Zurich, Affolternstrasse 56, 8050

Zürich, Switzerland.

Email: andre.walter@uzh.ch

Do salient minority-majority divisions undermine state capacity develop-

ment? Can such divisions be overcome during national emergencies such as

interstate war? A rich literature argues that ethnic minorities resist state

building because they want to limit the state’s capacity to implement cen-

tralizing and standardizing policies (Hechter, 2000;Lipset & Rokkan, 1967/

1990;Tilly, 1990). Similarly, several contributions f‌ind that ethnic diversity

exerts a negative effect on state capacity development (Alesina et al., 1999;

Habyarimana et al., 2007;Thies, 2007). However, there are also important

dissenting voices, which argue that this relationship is correlational rather than

causal (Baldwin & Huber, 2010;Kustov & Pardelli, 2018;Wimmer, 2016).

This paper examines the effect of minority-majority divisions on

popular support for f‌iscal capacity development, which denotes the state’s

ability to mobilize f‌inancial resources from society. Fiscal capacity is

strongly related to the broader concept of state capacity, which refers to the

state’s ability to “implement off‌icial goals, especially over the actual or

potential opposition of powerful social groups or in the face of recalcitrant

socioeconomic circumstances”(Skocpol, 1985, 9). Fiscal capacity thus

provides the necessary f‌inancial resources to pursue state capac ity de-

velopment (Hopkins, 2009;Rogers & Weller, 2014).

There is also a rich literature focusing on f‌iscal capacity development

specif‌ically. This literature emphasizes the important role of periods of in-

terstate war (e.g., Besley & Persson, 2009;Haffert, 2019;Kiser & Linton,

2001;Levi, 1988;Mann, 1986;Morgan & Prasad, 2009;Tilly, 1975). One

reason for this relationship is the “rally around the f‌lag”effect (Hetherington

& Nelson, 2003), which describes how emergency situations such as interstate

war increase solidarity among the population and make voters rally in support

of their national leaders (Dryzek & Goodin, 1986;Rehm, 2016;Scheve &

Stasavage, 2016;Stein, 1976;Walter & Emmenegger, 2022a).

But what happens to minority-majority divisions during national

emergencies? More specif‌ically, does interstate war help overcome the

negative effect of salient minority-majority divisions on f‌iscal capacity

development? Herbst (1990,2000) famously argues that it is precisely the

lack of interstate war that has prevented African countries from over-

coming competing ethnic aff‌iliations, developing a common national

identity, and building a strong state. However, other research suggests that

interstate war has a positive effect on f‌iscal capacity only in presence of a

comparatively homogeneous population (Centeno, 2002;Taylor & Botea,

2008). Finally, ethnic divisions and f‌iscal capacity are both inf‌luenced by

earlier political processes, including histories of war (Besley & Persson,

2009;Bleaney & Dimico, 2016;Gennaioli & Voth, 2015;Wimmer, 2016),

which suggests that the relationship between minority-majority divisions,

interstate war, and f‌iscal capacity development is at least partly

endogenous.

1366 Comparative Political Studies 56(9)

This paper uses a regression discontinuity design to examine th e effect

of a politically salient minority-majority division on f‌iscal capacity de-

velopment during the First World War. We explore ethnic divisions in

popular support for two direct democratic proposals in Switzerland. The

f‌irst proposal, in June 1915, concerned the introduction of a one-time tax

onwealthandincome.Thistaxwasbasedonthefederalstate’s war-time

emergency powers, specif‌ically earmarked to pay for mobilization costs,

and not meant to have a long-term effect on f‌iscal capacity. In contrast, the

second proposal, in June 1918, aimed to introduce—for the f‌irst time—a

permanent tax on wealth and income at federal level. By giving the federal

state the constitutional right to tax wealth and income, the 1918 proposal

would have signif‌icantly expanded f‌iscal capacity. Both direct democratic

votes took place against the background of a massive mobilization effort in

Switzerland. This is also true for the 1918 vote. In June 1918, after the

German Spring Offensive, German troops were within 40 km of Paris. The

Allied Forces’Hundred Days Offensive, which practically ended the war,

startedonlyinAugust1918(Snyder, 2009). Hence, in June 1918, Swiss

voters did not know that one of the most devastating wars in human history

was about to end.

We argue that mass political behavior in these two direct democratic

votes provides us with a unique opportunity to examine revealed public

preferences for taxation and f‌iscal capacity development duri ng wartime.

Put differently, we can investigate processes that in other cases are hidden

from plain sight. To overcome endogeneity issues, we exploit variation in

elevation, which is a strong and exogenous predictor of linguistic diversity

(Michalopoulos, 2012). Examining citizens’voting behavior at a signif-

icant discontinuity that separates the minority French speakers from the

majority German speakers within the same political-administrative unit,

we show that the linguistic minority displayed similarly high levels of

support for the emergency war tax to pay for the mobilization costs.

However, the linguistic minority showed considerably less support for the

proposal to expand f‌iscal capacity permanently. These f‌indings suggest that

while interstate war engenders a “rally around the f‌lag”effect that also

includes ethnic minorities, this effect is limited to emergency measures and

does not necessarily extend to attempts to permanently expand f‌iscal

capacity.

This paper is structured as follows. The next two sections review the

literature on ethnic minorities, interstate war, and f‌iscal capacity development.

After the discussion of the research design, we present our empirical f‌indings.

The concluding section discusses to what extent our f‌indings can be gen-

eralized to other cases.

Walter and Emmenegger 1367