Abstract

Can tax regimes shape the incentives to engage in armed conflict? Indian mining royalties benefit the States, but are set by the central government. India's Maoist belt is mineral-rich, and States are responsible for counterinsurgency operations. We exploit the introduction of a 10% ad valorem tax on iron ore that increased royalty collections of the affected states by a factor of 10. We find that the royalty hike was followed by a significant intensification of violence in districts with important iron ore deposits. The royalty increase was also followed by an increase in illegal mining activity in iron mines.

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