Civil Unrest and Government Transfers
in India
Professor Patricia Justino
Institute of Development Studies
12 March 2015
Context
 Several instances of civil unrest across the globe in last few years: food
riots, Arab spring, occupy movements
 Inequality at the source of discontent: Bates (1983), Grossman (1991,
1999), Gurr (1970) etc..
 Private and social costs of unrest high: Barron et al (2004), Collins and
Margo (2004)
 Not all civil protests escalate into violence and destruction

Emergence of inclusive and democratic societies explained by how institutions
manage social diversity (Acemoglu and Robinson
 Distributive conflicts solved through fiscal policy and provision of
public goods and services through centuries
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Extension of voting rights in 19th century (Acemoglu and Robinson 2000)
Sozialstaat (Bismarck) as means to win the loyalty of the German working classes;
foundations of European Welfare State
‘Winning hearts and minds’ in modern USA counterinsurgency
Large literatures on the role of government transfers in reducing crime and in
gaining political support and votes
But also literature suggesting that redistributive transfers may result in economic
distortions and spur social conflict
Government transfers limited in poorer countries due to fiscal limitations
Limited empirical evidence on whether government expenditure reduces unrest
Research question
 What is the effect of government transfers on civil unrest? Can
government expenditure be used to mitigate unrest and prevent civil
violence?
 Case study: India
 Data: longitudinal dataset major 16 Indian states 1960-2011
Theoretical framework

Justino, P. “Carrot or Stick? Redistributive Transfers versus Policing in India”
MICROCON WP#3

Polarised society across two groups A and B (elite vs rest of pop) (e.g.
Grossman, 1991, 1994; Acemoglu, 2007 on oligarchies)
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Existence of inequalities between groups cause social discontent (also a la
Grossman)
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Elite choice: buy-out potential troublemakers through transfers or resort
to repressive measures (police and military)
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Costs: redistribution may lead to discontent amongst those taxed more
highly and may cause economic distortions; repression may spur further
conflict and ability to finance large police and military forces (repression
threshold – Boix, Gurr, Hirschman)
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Two periods (t-1 and t); group B do not save between t-1 and t
Conceptual model
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Difference equation:
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With:
Pt   Ct
Ct  Ct 1   Pt   Pt 1   It 1
I t  Y A  Tt
Tt  Ct
 < : society with high repression threshold
 > : society with low repression threshold
Coefficients normalised;  [0,1]
θ: inverse of inequality aversion coefficient (Atkinson, 1970; Hirschman, 1981); θ=1
low tolerance; θ=0 high tolerance
Relative inequality: intertemporal difference between changes in incomes of rich
and poor (Boix, 2004)
Group B do not save; normalise income by povline  group B income = transfers;
group B do not incur in costs
In absence of conflict management Ct=Ct-1 (conflict trap – Azam, Collier and
Hoeffler, 2000)
Model solutions
Ct  Ct 1   Pt   Pt 1   Y L   Tt 1
General form:
with
Ct  J ( K )t  L
1    
and
K
1  

L
YR
 (   )  
J + L = initial conditions
L = amount of conflict that will always persist (dynamic equilibrium state)
K > 1: always increasing conflict
K = 1: discontinuity point
K < 1: always decreasing conflict
Solutions for conflict decrease
In order to guarantee decrease in conflict we need:
1
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    


β/ = ratio of elasticity coefficients of
transfers and policing
(- ) = repression threshold, calibrated by:
1/θ = inverse inequality aversion
coefficient (1 = high aversion)
Scenario 1: Positive transfers with high threshold (β > 0;  < ): costs of transfers and
of repression are low
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Condition always true; trade-off does not take place; conflict does not increase
Eg1: Perfect democracy: everyone votes over optimal level of taxation (high level of
inequality plus high aversion  higher preference by median-voter for transfers  always
move to equilibrium) (Persson and Tabelini, 1994; Alesina and Rodrik, 1994)
Eg2: ‘Enlighted’ oligarchic regimes: Poor excluded from decisions; only minimum level
transfers takes place (to keep peace) (Buchanan and Tullock, 1962) (Singapore eg in
Acemoglu and Robinson, 2006; Syria until Arab spring)
Scenario 2: Positive transfers with low threshold (β > 0;  > ): costs of transfers low
but costs of repression high
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Low repression threshold plus group B have increased probability to engage in conflict
(increase bargaining power)
Because interdependency between UFs  poor influence decisions by rich  transfers
will take place (choice theory; Sen, 1982)
Social unrest decreases when β >  (transfer elasticity higher than policing elasticity)
Government transfers are most important as a tool to reduce conflict in scenario 2
Scenario 3: No transfers
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β = 0  Conflict decreases if  < 
Conflict spirals out of control at any given time unless police is very large or very efficient
(e.g. repressive regime)
How far from equilibrium depends on level of police group A can afford:
 Capacity to attract foreign investment (Collier and Hoeffler, 2000)
 National resource endowments (Collier and Hoeffler, 2000; Ghate et al. 2003)
 Capital mobility (and thus avoid costs) (Boix, 2004)
India
 Large propensity for civil unrest:
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40,000 people killed or severely injured in riots in India since Independence
(Wilkinson 2004)
Evidence for inequalities as source of discontent and unrest
 Large demand for provision of social goods and services (largest
democracy in the world):
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Public employment quotas for scheduled castes and tribes
MNREGA programme
 Practical considerations: panel data collected homogeneously across
states; avoids problems of international comparison using noncomparable data
Rioting in India 1960-2011
Major riots: Aligarh (1978), Punjab (late 1970s), Mumbai (1992), Ayodhya (1992), Gujarat (2002)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
0
0
0
10000
15000
20000
5000
10000
15000
20000
5000
RT
10000
15000
20000
5000
0
10000
15000
20000
5000
Rioting in India 1960-2011
1960
1980
2000
2020 1960
1980
2000
2020 1960
year
Graphs by State
1980
2000
2020 1960
1980
2000
2020
Empirical model
Cit  i  t  X it 1  Zit  Vit   it
Main dependent variable - riots: ‘collective acts of spontaneous violence that include five or
more people’ (GOI)
Main explanatory variable – government expenditure on social services: annual real expenditure
at 1980-81 prices on education, health, family, welfare, labour and other social services
(GOI)
Control variables: population density, level of education (no people enrolled in primary and
secondary educ), quality of law enforcement (use of police), political institutions (elections
won by Congress party) and economic capacity (state income per capita at 1980-81 prices)
Estimation procedures:
 Panel fixed-effects model
 Generalised method of moments (GMM) (Arellano and Bond, 1991)
 IV model: Benerjee and Iyer (2005): mean proportion of districts where historical
collection of revenue was not assigned to landlords; these have higher levels of public
spending today
Results
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FE
FE
GMM
IV
GMM
Lagged riots
0.884***
0.881***
0.840***
0.893***
0.780***
Gov exp t
-197.4
-153.8
-25.8
-318.5
Gov exp t-1
-0.001**
-0.001*
-0.002**
-0.001**
Inequality t-1
86.5**
Poverty t-1
44.9**
Controls
YES
YES
YES
YES
YES
Year effects
NO
YES
YES
YES
YES
Obs
388
388
361
358
345
Transfers more effective in longer term: no. riots decreases by 0.1-0.2% for each extra rupee
spent in government expenditures per capita in year t-1
Evidence of potential conflict trap (Azam, Collier & Hoeffler, WB 2001)
Additional controls: +income effect; +(rural) poverty effect: in richer states poorer rioters
may have more to gain from civil unrest
Congress has negative effects on riots: works through poverty effect
No effects: police, school enrolments and state population
Possible mechanisms: government expenditure reduces inequality and poverty
Results driven by medical and social expenditures – not clear why (work in progress)
Additional results
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Strikes
Naxal
insurgency
Crime
Low
rioting
High
rioting
Lagged conflict
0.033***
-0.987***
0.006
0.128**
0.862***
Gov exp t
-546.6***
3.301
25333.2
-49.41
-445.5
Gov exp t-1
0.001
0.0003***
-0.018
-0.003***
-0.002
Police
0.004**
-0.001**
0.009
0.011**
-0.029*
Controls
YES
YES
YES
YES
Year effects
NO
YES
YES
YES
Obs
388
388
361
345
No effect of government expenditure on crime
Immediate effect of government transfers on strikes (but no long term effect); police
effective at reducing strikes
Positive effect of government transfers in Naxal areas: appropriation of social programmes?
Government expenditure most effective in areas of low rioting
Police fuels resentment in low rioting areas but effective once rioting escalates
Use of government transfers to curtail riots before they escalate and become endemic
Summary of results
 Government expenditure on social services associated with significant
long-term reductions in riots across India in period of 1960-2011
 Results likely to be driven by impact of social expenditure on levels of
poverty and inequality (take time to affect social discontent and
probability of rioting)
 Government expenditure most effective in areas of low rioting before
riots escalate and become endemic
 Note that India spends less than other developing countries on social
services (around 3% of GDP against 4% average)
Implications
 Role of redistribution and fiscal policy in preventing civil conflict
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Government transfers may shape preferences of citizens in ways that prevent
violence
Government transfers may increase opportunity costs of fighting
Merits more study given rises in inequality (Piketty)
 Bring back the role of state in managing social and political order: the
importance of fiscal instruments and fiscal capacity (Besley)