War Violence Exposure and Tax Compliance

Abstract

We investigate how exposure to conflict and violence influences civic compliance with the law. Using newly digitized records of income declarations and tax audits from post-World War I Italy, we find that taxpayers who lost a relative due to direct war-related causes were significantly less likely to comply with tax laws compared to those whose relatives died during the war from indirect causes, such as illness or non-combat accidents. To address potential endogeneity in the treatment, we employ an instrumental variable strategy that leverages the exogenous assignment of soldiers to military units with varying levels of danger. Our findings reveal that the observed reduction in tax compliance persists across different compliance measures and cannot be attributed to income-related factors. This effect is mitigated when the state formally recognizes the sacrifice of the deceased or in communities with higher overall fatality rates. Our findings suggest that war can erode social norms, leading to a lower willingness to contribute to public goods, such as paying taxes.

Keywords: war, tax compliance, state capacity, Italy