The Fiscal Cost of Conflict: Evidence from Afghanistan 2005-2016

September 11, 2018

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Philip Barrett. The Fiscal Cost of Conflict: Evidence from Afghanistan 2005-2016, (USA: International Monetary Fund, 2018) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

I use a monthly panel of provincially-collected central government revenues and conflict fatalities to estimate government revenues lost due to conflict in Afghanistan since 2005. I identify causal effects by instrumenting for conflict using pre-sample ethno-linguistic share. Headline estimates are very large, implying total revenue losses since 2005 of $3bn, and future revenue gains from peace of about 6 percent of GDP per year. Reduced collection efficiency, rather than lower economic activity, appears to be the key channel. OLS estimates understate the causal effect by a factor of four. Comparing to estimates from Powell’s (2017) generalized synthetic control method suggests that this bias results from omitted variables and measurement error in equal share. The findings underscore the considerable economic loss due to conflict, and the importance of careful identification in measuring this loss.

Subject: Econometric analysis, Estimation techniques, Expenditure, Price controls, Prices, Public expenditure review, Revenue administration, Revenue sharing, Taxes

Keywords: Afghanistan, Central Asia, Central government, Conflict, Economic activity, Efficiency effect, Estimation techniques, Fiscal policy, Global, GSC estimate, IV estimate, Least squares, North Africa, OLS estimate, Peace dividend, Price controls, Public expenditure review, Revenue loss, Revenue sharing, Standard deviation, Sub-Saharan Africa, WP

Publication Details

Pages:

79
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/204
Stock No:

WPIEA2018204
ISBN:

9781484374931
ISSN:

1018-5941

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