The Price of Peace: Public Finance Institutions and Social Order in Post-Conflict Countries

Abstract

What impacts do attempts to reform public finance institutions have on social order in low-income post-conflict countries? International development agencies invest heavily in building and reforming public finance institutions in war-torn countries as part of broader development and state-building efforts. Improvements in the ways revenues are raised, budgets are prepared and executed, and funds flow through government financing systems are assumed to help address conflict pressures, by supporting strengthened state legitimacy via improved economic outcomes and better delivery of public services. The assumed relationship between public finance reform and social order has, however, been subject to little empirical examination and is increasingly challenged by theoretical and empirical literature. Recent evidence suggests that social order in fragile state settings depends more on the enrolment and placation of powerful actors through the distribution of economic rents than on economic growth or the effective delivery of services. In this thesis, I apply an historical institutionalist clustered case study approach to examine the impacts of major public finance reform initiatives on social order in three low-income, post-conflict settings (Solomon Islands over 2003-2014, Timor-Leste over 2000-2015, and Afghanistan over 2001-2021). I utilize Mushtaq Khan's 'political settlements' framework to show that in each case, efforts to reform public finance institutions weakened the capacity of political elites to distribute public sector rents to powerful actors, contributing to disorder and conflict pressures. This led to important second-order effects. Political elites, sensitive to conflict risks, sought to distort, undermine, or selectively apply imported public finance institutions to achieve rent extraction and distribution objectives. Imported public finance institutions thereby came to serve important functions very different from those initially intended. My findings highlight important incompatibilities between established development practice and the conflict mitigation objectives increasingly pursued by international development agencies working in fragile country settings. Show more