Endogenous Taxation in Ongoing Internal Conflict ideology,insurgents tried to mobilize and work with Though we expect tax revenue to be higher in areas peasants and workers who were traditionally shut out with paramilitary presence and lower in areas with of the political system.The distinct "constituencies" insurgent presence,we do not argue that right-wing of insurgents and paramilitaries imply differing prefer- paramilitaries or the elites that supported them fa- ences over policies. vored increased taxation or that the left-wing insur- A particularly fraught policy area that armed groups gents opposed redistribution.Instead,armed groups' intervened in is land formalization,which has implica- preferences over tax rates and enforcement are am- tions for local tax performance.Right-wing paramili- biguous in Colombia.Paramilitaries might try to ben- taries were founded by large landowners and narco- efit supporters by pushing for lower rates and lax en- traffickers who began to purchase tracts of land. forcement of property taxes.This position would be As they expanded,they displaced peasants and claimed consistent with historical precedent in the twentieth their land (Romero 2000;Ronderos 2014;Reyes century:Sanchez-Talanquer(2018)finds that following Posada 2009).To legitimate this transfer of land, large-scale land reform attempts,local elites registered paramilitaries sought to formalize property through property in the cadaster to establish their property the state.This was consistent with what we noted rights,but manipulated property value to avoid paying above:traditionally,elites have been able to secure le- higher tax.At the same time,paramilitaries could ben- gal title to their property,while poor peasants face mul- efit from an increase in local tax revenue because they tiple barriers to doing so.Updating cadasters to reflect issued lucrative contracts to supporters to carry out newly acquired or changed properties(for instance,an municipal functions like health services(Eaton 2006; enlarged plot of land)is consistent with an interest in Verdad Abierta n.d.).16 New landowners could also securing property rights,even if the property is illegally calculate that paying taxes was a small cost to pay acquired (for instance through claiming the land of a for securing property,and employ tax resources to displaced household).14 expand their control over the local bureaucracy and Left-wing insurgents favored more equitable land bargaining power relative to higher levels of govern- 4号元 distribution but not private property rights (Bernal ment (Sanchez-Talanquer 2018;Pardelli 2018).More- Morales 2014).One way they promoted this goal was over,short-term development of specific local admin- through land invasions,where poor peasants and work- istrative capacities does not prevent the long-term hol- ers would occupy state lands(baldios)or private prop- lowing out and capture of the state (Stasavage 2014). erty.However,such invasions were typically not for- Insurgents,though they did favor redistribution,pre- malized legally.More common in insurgent areas was ferred not to work through the state's institutions be- a preference for excluding or prohibiting represen- cause doing so would legitimate the state.The FARC tatives of the state from surveying the land or plot- issued its own tax code,targeting the wealthy in areas of ropertyncessary steps the ftormalization their influence(see below).In terms of property rights, the insurgents preferred to impede the efforts of the Given the divergent preferences of and incentives state (Bernal Morales 2014)and regulate land on its for armed groups to shape local property institutions own.17 we expect differences in local property tax perfor- Before we explain how we test our hypotheses,we mance overall.We propose four hypotheses: first summarize temporal trends in capture over the 5181.10198 course of the war In areas with substantial FARC and ELN violence: Civil War Dynamics and Capture in Colombia Hia Tax revenues per capita will be lower because fewer properties will be formalized. The dynamics of the civil war in terms of territorial Hib Left-wing parties will tend to outperform in mayoral control and violence have changed significantly over and municipal council elections controlling for the pre- time.We separate the war's recent evolution and the existing partisan balance. armed groups'capture strategies into four periods and organize the statistical analysis around these four pe- In areas with substantial paramilitary violence: riods because pooling them would effectively assume that armed actors had the same ability to influence tax H2a Tax revenues per capita will be higher because more policies in every year,which strikes us as substantively property will be formalized. unrealistic.The four periods(described in detail in Ap- eys H2b Right-wing parties will tend to outperform in mayoral pendix H)can be defined as follows: and municipal council elections controlling for the pre- existing partisan balance. 6 Though ideally we could test the effects of armed groups'influence on tax rates and enforcement,we do not have the data to do so.In 14 Ibaniez and Munoz(2011)find that the concentration of land be- the end,what we do test is the net effect of their influence on local tween 2000 and 2009 increases as the result of an increase in plots property tax revenue.These data indicate that whatever is happening mber of plots purchsed by few people. with tax rates and enforcement,land formalization measures increase Corporacion Regional para el Desarrollo Sostenible del Area de tax revenue overall. Manejo Especial la Macarena(CORMACARENA)official inter- One example of the FARC's intransigence on state-backed prop- view with the authors,Vista Hermosa,January 26,2011.This official erty rights was its opposition to land restitution for the internally told us he could not conduct land surveys in the area because the displaced through the Victims Law of 2011,calling it "legal dispos- FARC would not permit it. session"(Bernal Morales 2014). 1001
Endogenous Taxation in Ongoing Internal Conflict ideology, insurgents tried to mobilize and work with peasants and workers who were traditionally shut out of the political system. The distinct “constituencies” of insurgents and paramilitaries imply differing preferences over policies. A particularly fraught policy area that armed groups intervened in is land formalization, which has implications for local tax performance. Right-wing paramilitaries were founded by large landowners and narcotraffickers who began to purchase tracts of land. As they expanded, they displaced peasants and claimed their land (Romero 2000; Ronderos 2014; Reyes Posada 2009). To legitimate this transfer of land, paramilitaries sought to formalize property through the state. This was consistent with what we noted above: traditionally, elites have been able to secure legal title to their property, while poor peasants face multiple barriers to doing so. Updating cadasters to reflect newly acquired or changed properties (for instance, an enlarged plot of land) is consistent with an interest in securing property rights, even if the property is illegally acquired (for instance through claiming the land of a displaced household).14 Left-wing insurgents favored more equitable land distribution but not private property rights (Bernal Morales 2014). One way they promoted this goal was through land invasions, where poor peasants and workers would occupy state lands (baldíos) or private property. However, such invasions were typically not formalized legally. More common in insurgent areas was a preference for excluding or prohibiting representatives of the state from surveying the land or plotting the property—necessary steps in the formalization process.15 Given the divergent preferences of and incentives for armed groups to shape local property institutions, we expect differences in local property tax performance overall. We propose four hypotheses: In areas with substantial FARC and ELN violence: H1a Tax revenues per capita will be lower because fewer properties will be formalized. H1b Left-wing parties will tend to outperform in mayoral and municipal council elections controlling for the preexisting partisan balance. In areas with substantial paramilitary violence: H2a Tax revenues per capita will be higher because more property will be formalized. H2b Right-wing parties will tend to outperform in mayoral and municipal council elections controlling for the preexisting partisan balance. 14 Ibáñez and Muñoz (2011) find that the concentration of land between 2000 and 2009 increases as the result of an increase in plots and an increased number of plots purchased by few people. 15 Corporación Regional para el Desarrollo Sostenible del Area de Manejo Especial la Macarena (CORMACARENA) official interview with the authors, Vista Hermosa, January 26, 2011. This official told us he could not conduct land surveys in the area because the FARC would not permit it. Though we expect tax revenue to be higher in areas with paramilitary presence and lower in areas with insurgent presence, we do not argue that right-wing paramilitaries or the elites that supported them favored increased taxation or that the left-wing insurgents opposed redistribution. Instead, armed groups’ preferences over tax rates and enforcement are ambiguous in Colombia. Paramilitaries might try to benefit supporters by pushing for lower rates and lax enforcement of property taxes. This position would be consistent with historical precedent in the twentieth century: Sánchez-Talanquer (2018) finds that following large-scale land reform attempts, local elites registered property in the cadaster to establish their property rights, but manipulated property value to avoid paying higher tax. At the same time, paramilitaries could benefit from an increase in local tax revenue because they issued lucrative contracts to supporters to carry out municipal functions like health services (Eaton 2006; Verdad Abierta n.d.).16 New landowners could also calculate that paying taxes was a small cost to pay for securing property, and employ tax resources to expand their control over the local bureaucracy and bargaining power relative to higher levels of government (Sánchez-Talanquer 2018; Pardelli 2018). Moreover, short-term development of specific local administrative capacities does not prevent the long-term hollowing out and capture of the state (Stasavage 2014). Insurgents, though they did favor redistribution, preferred not to work through the state’s institutions because doing so would legitimate the state. The FARC issued its own tax code, targeting the wealthy in areas of their influence (see below). In terms of property rights, the insurgents preferred to impede the efforts of the state (Bernal Morales 2014) and regulate land on its own.17 Before we explain how we test our hypotheses, we first summarize temporal trends in capture over the course of the war. Civil War Dynamics and Capture in Colombia The dynamics of the civil war in terms of territorial control and violence have changed significantly over time. We separate the war’s recent evolution and the armed groups’ capture strategies into four periods and organize the statistical analysis around these four periods because pooling them would effectively assume that armed actors had the same ability to influence tax policies in every year, which strikes us as substantively unrealistic. The four periods (described in detail in Appendix H) can be defined as follows: 16 Though ideally we could test the effects of armed groups’influence on tax rates and enforcement, we do not have the data to do so. In the end, what we do test is the net effect of their influence on local property tax revenue.These data indicate that whatever is happening with tax rates and enforcement,land formalization measures increase tax revenue overall. 17 One example of the FARC’s intransigence on state-backed property rights was its opposition to land restitution for the internally displaced through the Victims Law of 2011, calling it “legal dispossession” (Bernal Morales 2014). 1001 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:05, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000333
Rafael Ch et al. 1988-1996:FARC ascendancy.According to one widely in the correlation between tax performance and estimate,the FARC went from a presence in 173 the type and level of armed group presence;second. of the country's municipalities in 1985 to 622 by and following the historical shifts of the Colombian :000100006/L0LoL 1995(Echandia 2006.28).By the end of the period. war,this variation changes over time,a feature that the FARC and the ELN both enforced election will be exploited in the empirical specification to test boycotts in areas under their control and threat- our hypotheses and in the substantive interpretation of ened elected mayors and local council members results.19 ("FARC Prohiben Elecciones en 23 Municipios,' El Tiempo,October 23,1997).While some re- gional politicians supported paramilitaries'forma- Data tion during this period(Ronderos 2014,37),there Table 1 provides descriptive statistics of our main out- is little evidence that paramilitary groups tried to come variables,used to test both the main empir- capture political institutions directly at the local ical relationships and the mechanisms described in level during this period. our testable hypotheses(Panel A).Outcomes include 1997-2002:Paramilitary expansion.In 1997,re- logged tax revenues per capita,proxies of cadastral per- gional paramilitary groups united under the formance,the land informality rate,and electoral out- umbrella group United Self-Defense Forces of comes.Tax revenues are highly skewed,with a long Colombia (AUC)and the war spread.By 2001, right tail of municipalities with substantially greater tax the AUC was powerful enough to convene a meet- revenues per capita than others.20 We therefore run our ing with nearly 100 politicians to formulate a con- estimation of the impact of violence on property tax certed effort to win elections at all levels,and to revenues per capita on logged values.21 support Alvaro Uribe's candidacy for president in Table 1 also describes the independent variables of 2002(known as the Santa Fe de Ralito pact).Com- interest(Panel B),namely the cumulative attacks per- pared to the paramilitaries,the FARC's influence petrated by each of the two main armed groups,dur- 4号 remained indirect during this period as the group ing each one of the four periods that mark the evo- eschewed official electoral politics,preferring to lution of Colombia's civil war,as described in the threaten municipal candidates that the group did Civil War Dynamics and Capture in Colombia sec- not approve of,or acting mayors. tion.22 Measuring the influence exercised by an armed ● 2003-2006:Paramilitary demobilization.In 2003, group over a specific location is extremely challenging. the Uribe administration negotiated a ceasefire Indicators of presence and nonviolent coercion over with paramilitary groups and eventually adopted a large set of municipalities cannot be systematically the Justice and Peace law,allowing paramilitary recorded in an objective way.Violence,on the other commanders to demobilize their troops in ex- hand,while more easily observed,is only imperfectly change for lenient sentences.Paramilitary demo- correlated with territorial dominance.For instance,it bilizations from 2003 to 2005 transformed the war may be the case that municipalities with low levels of into a contest between the state and remaining in- violence or no armed contestation represent an armed surgent groups(the FARC and ELN).The conflict group stronghold,where tax policies are likely to be with the FARC continued apace during this period, influenced. with no change in their capture strategy. However,nonviolent dominance is unlikely to occur 2007-2010:State resurgence.Having pushed the without any violence inflicted in the past,either as a FARC into peripheral areas by the end of 2006, way to legitimize influence with the citizenry or to oust the Colombian military and police redeployed any contesting(legal or illegal)group.It is thus reason- to major population centers and roads,improv- able to assume that the ability to inflict localized vio- ing measures of security.The weakened FARC lence over a relatively long period could be expected agreed to peace talks following the 2010 elec- to translate into influence in different ways.Moreover, tion of Uribe's Minister of Defense,Juan Manuel as all our results are robust to controlling for violence Santos.Former paramilitary groups morphed into by the other actor,we posit that municipalities with new organizations-including the Black Eagles, greater violence are more likely to be captured by the and drug-trafficking groups such as the Urabenos perpetrating armed group.?3 and the Rastrojos,which sometimes engaged in ac- tions against the FARC,the ELN,and the civil- ian population,though at much lower rates than 19Correlations are carried out at the department level since munic- in previous times. Taking into account these time periods,Figure 3 shows dard deviations above the mean. the department-level relationship between cumulative 21 The results are substantially the same when we add to the set of controls the log of the municipal population instead of using per attacks by armed groups and average property tax rev- enues in the following time period.There are two See Appendix A for detailed descriptions of all the variables and main takeaways:first,departments in Colombia vary measures. 23 A more stringent test is to focus on the subsample of places where violence by both groups is recorded,dropping the municipalities 18 There are 32 departments in Colombia.This administration level where one group does not engage in any violence at all during the is equivalent to US states. sample period.Even with the statistical power reduction implied by 1002
Rafael Ch et al. 1988–1996: FARC ascendancy. According to one estimate, the FARC went from a presence in 173 of the country’s municipalities in 1985 to 622 by 1995 (Echandía 2006, 28). By the end of the period, the FARC and the ELN both enforced election boycotts in areas under their control and threatened elected mayors and local council members (“FARC Prohíben Elecciones en 23 Municipios,” El Tiempo, October 23, 1997). While some regional politicians supported paramilitaries’ formation during this period (Ronderos 2014, 37), there is little evidence that paramilitary groups tried to capture political institutions directly at the local level during this period. 1997–2002: Paramilitary expansion. In 1997, regional paramilitary groups united under the umbrella group United Self-Defense Forces of Colombia (AUC) and the war spread. By 2001, the AUC was powerful enough to convene a meeting with nearly 100 politicians to formulate a concerted effort to win elections at all levels, and to support Álvaro Uribe’s candidacy for president in 2002 (known as the Santa Fe de Ralito pact). Compared to the paramilitaries, the FARC’s influence remained indirect during this period as the group eschewed official electoral politics, preferring to threaten municipal candidates that the group did not approve of, or acting mayors. 2003–2006: Paramilitary demobilization. In 2003, the Uribe administration negotiated a ceasefire with paramilitary groups and eventually adopted the Justice and Peace law, allowing paramilitary commanders to demobilize their troops in exchange for lenient sentences. Paramilitary demobilizations from 2003 to 2005 transformed the war into a contest between the state and remaining insurgent groups (the FARC and ELN). The conflict with the FARC continued apace during this period, with no change in their capture strategy. 2007–2010: State resurgence. Having pushed the FARC into peripheral areas by the end of 2006, the Colombian military and police redeployed to major population centers and roads, improving measures of security. The weakened FARC agreed to peace talks following the 2010 election of Uribe’s Minister of Defense, Juan Manuel Santos. Former paramilitary groups morphed into new organizations—including the Black Eagles, and drug-trafficking groups such as the Urabeños and the Rastrojos, which sometimes engaged in actions against the FARC, the ELN, and the civilian population, though at much lower rates than in previous times. Taking into account these time periods, Figure 3 shows the department-level relationship between cumulative attacks by armed groups and average property tax revenues in the following time period.18 There are two main takeaways: first, departments in Colombia vary 18 There are 32 departments in Colombia. This administration level is equivalent to US states. widely in the correlation between tax performance and the type and level of armed group presence; second, and following the historical shifts of the Colombian war, this variation changes over time, a feature that will be exploited in the empirical specification to test our hypotheses and in the substantive interpretation of results.19 Data Table 1 provides descriptive statistics of our main outcome variables, used to test both the main empirical relationships and the mechanisms described in our testable hypotheses (Panel A). Outcomes include logged tax revenues per capita, proxies of cadastral performance, the land informality rate, and electoral outcomes. Tax revenues are highly skewed, with a long right tail of municipalities with substantially greater tax revenues per capita than others.20 We therefore run our estimation of the impact of violence on property tax revenues per capita on logged values.21 Table 1 also describes the independent variables of interest (Panel B), namely the cumulative attacks perpetrated by each of the two main armed groups, during each one of the four periods that mark the evolution of Colombia’s civil war, as described in the Civil War Dynamics and Capture in Colombia section.22 Measuring the influence exercised by an armed group over a specific location is extremely challenging. Indicators of presence and nonviolent coercion over a large set of municipalities cannot be systematically recorded in an objective way. Violence, on the other hand, while more easily observed, is only imperfectly correlated with territorial dominance. For instance, it may be the case that municipalities with low levels of violence or no armed contestation represent an armed group stronghold, where tax policies are likely to be influenced. However, nonviolent dominance is unlikely to occur without any violence inflicted in the past, either as a way to legitimize influence with the citizenry or to oust any contesting (legal or illegal) group. It is thus reasonable to assume that the ability to inflict localized violence over a relatively long period could be expected to translate into influence in different ways. Moreover, as all our results are robust to controlling for violence by the other actor, we posit that municipalities with greater violence are more likely to be captured by the perpetrating armed group.23 19 Correlations are carried out at the department level since municipalities are the lowest administrative unit in our data. 20 The wealthiest municipalities had tax receipts as much as ten standard deviations above the mean. 21 The results are substantially the same when we add to the set of controls the log of the municipal population instead of using per capita tax revenue. 22 See Appendix A for detailed descriptions of all the variables and measures. 23 A more stringent test is to focus on the subsample of places where violence by both groups is recorded, dropping the municipalities where one group does not engage in any violence at all during the sample period. Even with the statistical power reduction implied by 1002 Downloaded from https://www.cambridge.org/core. Shanghai JiaoTong University, on 26 Oct 2018 at 03:53:05, subject to the Cambridge Core terms of use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003055418000333