We appreciate the comments of Martin Feldstein, Kai Konrad, and participants in the NBER Summer Institute on the "Economics of National Security", the Conference on Advances on the Political Economy of Conict and Redistribution III, the Paris School of Economics and the HiCN Annual Workshop at UC Berkeley. We acknowledge the excellent research assistance provided by Juan Carlos Muñoz, Paula Garda, Marian Meller and Ece Yagman. Financial support from the European Research Council under the European Community ERC Grant Agreement n.647514, the Spanish National Science Foundation ECO2014-5555-P, and the Government of Catalonia (ICREA) is gratefully acknowledged. We are also thankful for the financial support provided by the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres ofExcellence in R&D (SEV-2015-0563).