The legacy of rebel taxation on postconflict fiscal capacity

Civil wars often erode state sovereignty, as institutions are replaced or co-opted by armed groups that establish informal governance structures. Among these, rebel taxation emerges as a key tool for financing wartime activities and administering territories. We explore whether rebel taxation during conflict is linked to fiscal capacity after conflict. We emphasize the dual nature of rebel taxation: it can undermine the state authority by entrenching informal systems or, conversely, foster statebuilding by introducing innovative tax systems, expanding revenue sources, and improving compliance. These practices may later be adopted by formal institutions, easing the transition to effective state taxation. Our analysis supports the latter argument, finding a positive association between rebel taxation and higher post-conflict tax revenues. This effect is especially pronounced in democracies, suggesting that institutional contexts shape the legacy of rebel governance. Overall, the findings highlight the enduring impact of rebel taxation on state capacity in post-conflict environments.