 All right, thank you very much, Patricia, for the invitation. I'm Santiago Tom from University of Afeet, and this is joint work, an ongoing work with Patricia and Martin Vanegas, who's a PhD student in University of Afeet. This is also supported by UNU Wider. And if you see any mistake here, blame me and not Patricia, because she's not to blame. We're going to talk about the relationship between illegal economies in Colombia and local fiscal capacity. And we're going to be leveraging an accident that has been documented by others in the way that the Colombian government communicated some of the subsidies that we're going to be provided to coca growers to try to have an exogenous shock on coca production and how that affects local tax revenues. So we know from the literature, and this is just like a conceptual framework by Rafa Che, Juan Vargas, and co-authors about how which are the links between conflict and local tax performance. And I'm going to talk about conflict broadly, including also illegal economies, because we're going to be talking about the context of Colombia, where conflict coincides with armed groups, which are not necessarily rebel or counterinsurgent. Sometimes are just criminal organizations. And illegal economies such as the cocaine production or the coca production. So different links like conflict deteriorating the tax base, conflict generating negative reciprocities of taxpayers, conflict reducing the returns of legal businesses and increasing the returns of illegal businesses that are not taxed. Criminal river rule undermining state legitimacy and conflict facilitating the capture of local institutions by armed groups. And we're going to focus on this third channel that has been mostly analyzed from a theoretical perspective with some empirical support. But at the end, it's hard to identify specific instances in which we can have kind of clean causal identification of this relationship. So we asked three questions in this work. One is, was there a positive shock on the size of illegal economies affect local tax revenues? The second one is, if so, which types of taxes? And finally, we're going to look at a potential relevant explanations for this. So we're going to study Colombia. Most of you, I guess, know about the country. 45 million people, roughly, middle income, a 50-year conflict that's close to an end, especially with the negotiations with the Fargarilla. They actually started here in Oslo in 2012. But still struggling with ending violence in many places. Why? Because of this very complex coincidence of conflict, the production of especially cocaine, which is a globally demanded product that's mostly roughly two-thirds of all the cocaine production in the world is concentrated in Colombia, and has these struggles in many parts of its territory. All right, so to start with a quick summary, what we do is we start with this exogenous positive shock on coca production that was documented by Munu Prem, Juan Vargas, and Daniel Mejia recently. And that resulted from the announcement by the government that was going to provide subsidies to coca growers after the peace negotiation, right? And this increased coca production. And then we see the impacts of this on the three main municipal level taxes, the trade and production tax that applies to all sectors. And this is going to be important except the agricultural sector. A second one, the property tax. And third one, the gasoline sales tax. These three taxes account for roughly 50% of total current income of municipalities on average. And what we find is that the trade and production tax remains stable. And we believe this is because, in general, aggregate economic activity, if we sum up legal and illegal sectors, remains more or less stable. And we're going to provide some evidence of this. The second one is that the property tax decreases. And we believe that this is because the agricultural sector transitioned from the legal to the illegal sector. And finally, we see also that the gasoline tax decreased with also the gasoline retail market transitioning from the legal to the illegal sector. And this is going to be important because gasoline is one of the main inputs to produce cocaine. So a bit of a context. The local taxes in Colombia, as I just described to you, these are the three main local taxes. Municipalities can collect other different types of revenues, mostly when they own some types of companies or because they're allowed to create some specific small taxes. But these are kind of the commonplace main sources of local revenue for municipalities. As I told you before, it's roughly 50% of total current income. So the trade and production tax is paid by businesses. And it's a percentage of approximate sales or production, which explicitly excludes the agricultural sector and other primary sectors. Then we have the property tax, which is paid by households and businesses that own property, which is a percentage of property valuation. Owners don't have to have a title. Even if they're just occupying the land plot, they have to pay this tax. And finally, the gasoline taxes that are paid by households and businesses, and it's just a percentage of gasoline sales. And all these taxes were created or reinforced in the 1991 Constitution in the country that reinforced decentralization and local fiscal capacity in the country in general. So this is just the recent evolution of how important are these three different taxes in total current income. So you can see if we aggregate all three, it roughly amounts to 50%. The most important one is the trade and production tax, then the property tax, and then the gasoline tax. Municipalities can also sometimes receive transfers from the national government, which have a specific purpose, for instance, funding education or funding the health system. If we include that here, then these three taxes would amount to roughly 20% of total revenue in our municipality in a year, on average. So the positive chalk on coca production. I was telling you the peace negotiations with the Far Garages started in 2012 here in Oslo. And the government started to announce agreements on different topics. The announcement on the agreement on the illicit drugs was made in May 2014. And in the press conference that was held together by the national government and the negotiators from the Far Garages, there was an explicit mention of material welfare conditions and subsidies for coca growers in the future. And actually, there are some journalistic accounts that only after the press conference the government actually realized that this could create perverse incentives for coca growers to start growing more coca. And in fact, at the end, coca growers actually received these subsidies, starting in 2017, which is continuing now. And this is how the evolution of coca crops behaved in the country. So here, the line at the bottom is not zero. It's 50 hectares per 1,000 hectares. And we can see that after the announcement, so this is a yearly measure, after the announcement, coca crops in Colombia went up quite by a lot. And what Munuprem and co-authors in the recent restart paper document is that the announcement largely explains this increase in coca cultivation. So this is a reproduction of their event study plot, where the treatment variable is a dummy for the announcement of the subsidies interacted with coca suitability in a municipality. I'm going to explain this a bit later because we're going to be using pretty much the same identification strategy. So we can see that after the announcement, starting in 2014, at the end of 2014, coca crops in municipalities with high suitability to grow coca actually start to grow a lot. So with data we're going to use, first we're going to focus our main outcomes on these third important local tax revenues which come from the National Planning Department. We're going to be discussing a bit on criminal and rebel groups because it's going to be important to think about what the treatment is here and the treatment is going to be a coincidence of an illegal economy, which is coca production, the presence of armed actors, plus the rule of these armed actors and across different dimensions. So to document how criminal groups behave in these territories, we're going to be using data compiled by Javier Osorio on human rights violations where we scraped these and tried to identify whether different groups engage in different types of governance in these municipalities. The presence of our groups is going to come from the Ministry of Defense and we're going to be using a coca suitability measure that was built by Daniel Mejia and Pasqual Restrepo in 2015. And to look for explanations, a measure for local economic activity is going to be night lights because there's no GDP at the municipal level in Colombia, that's at least reliable. We're going to look at agricultural production from the Ministry of Agriculture and arrests from the National Police and you'll see why in just a minute. So who engages in cocaine production? And this is kind of the big question on what the treatment is here, right? So the treatment is a compound set of things because coca production, even if it is actually conducted mainly by peasants, is regulated and ruled by criminal organizations. So typically in different territories in Colombia where there's coca production, there's some anopsony on who's the buyer of coca leaves, who typically actually pay very low prices to peasants, even though they end up selling at higher prices than otherwise legal products in many cases. But at the end, like most of the value added doesn't remain in the peasants, rather in the criminal organizations that start to continue the supply chain from that point. So cocaine production or coca production is where criminal organizations are present, right? And these groups engage to different degrees in different types of governance activities. So this is what we code using Ben Lessing's 2020 conceptual framework on conceptualizing criminal governance. We take words from these different dimensions of governance, policy and enforcement, judicial, fiscal, regulatory and political and then we scrape these human rights violation cases to look for these words and see in which municipalities which types of actors engage in this to try to have a better picture of what the treatment is here. And what we see is broadly a coincidence of this and these are the kind of the regressions that show these correlations. This is not causal, these are regressions at the municipal level. We're running regression on a panel, including some geographic controls, department fix effects and the first five columns just show how likely it is for the presence of an armed actor to coincide with these different five dimensions of governance activities and we see broadly like a lot. There's of course variation, some different groups engage in some of these activities more than others and so on. The sixth column show us more or less how these groups engage in any of these. And finally, we also see that these groups are present where coca is more suitable to grow, to be grown. So what's our empirical strategy? We follow, as I briefly told you, Monoprem and colleagues idea and leverage first the timing of the pre-announcement for future incentives for peasants to substitute coca away and the cross-sectional variation in coca suitability across municipalities. So our treatment is going to be an interaction of these two things. The main identifying assumption here is going to be that in the absence of this announcement, tax revenues in municipalities with high coca suitability would have followed the trajectory of tax revenues in municipalities with low coca suitability. And to avoid a discussion on instrumental variables, we're going to estimate reduced form effects, which is the impact of the announcement times the suitability on local tax revenues. So I'm not going to go into the details of this. I don't know how much time do I have? I think I'm doing good. All right. So this is just the typical event study regression, except that the treatment is going to be an interaction with time variation and cross-sectional variation across municipalities. Our primary outcomes, those why there are going to be the per capita revenues of these different three taxes. And our secondary focus is going to be looking for explanations. So economic activity, agricultural production, gasoline thefts and others, right? And we're going to be including municipality fixed effects and department-by-year fixed effects as well. Our coefficients of interest are going to be the beta Js, which are going to be the difference in revenues between municipalities with high versus low coca suitability in year J relative to 2013, which is the period just before the announcement. And these are the main results. So first we see, so we're going to be comparing all these coefficients against the 2013 one. We see that the trade and production tax revenues remain roughly similar. So we see that there's not a clear pattern going up or down and the confidence intervals are quite wide. Why do we believe this happens? Because in aggregate, we don't see major changes in economic activities in these municipalities, right? And these are the impacts on economic development measured using nightlights. Again, why do we think this happens? Peasants are still receiving money, not from the legal sector, but the legal sector. They can still use that money to buy stuff in, for instance, in the urban part of the municipality. So in general, sales and production of products that are indexed or are taxed with this tax are not generally affected in the local economy. We also see that property tax decreases. So these are the property tax revenues. We see a clear pattern going down. And why do we think this might happen? Potentially because of this substitution, you're participating in the legal economy, you pay taxes. You go to the legal economy, you have fewer incentives to actually pay taxes, right? And we believe that that might be happening because first, remember this figure, this is just again the figure that I showed you before, coca cultivation went up. This is from Munu, Prem and colleagues. And any other crop cultivation goes down. So there's like a clear pattern in which one economy turned from one side to the other. Then we also see a decrease in gasoline tax revenues. Also roughly a clear pattern going down. And why do we believe that is going on? Because we also observe an increase in gasoline theft. So this would be kind of an explanation of the gasoline retail market also moving from the legal to the illegal sector. So we see, and here are the impacts on gasoline theft related arrests. So this is kind of a noisy measure in general because not everyone gets arrested, but we do see kind of a pattern of arrests going up. And why is gasoline important in this context? As I told you before, because to produce one kilogram of cocaine, you actually need 280 liters of gasoline. So there's a lot of illegal trade off gasoline in places where there's a lot of coca and cocaine production. And finally, what happens with illegal taxation? So this is more of a speculative graph because in Colombia, there's a lot of extortion, but this is largely underreported. And just to give you an example, in a city where we have conducted many service to try to understand this problem better, which is Medellin, there are between 400 and 600 extortion reports, formal reports per year. And we estimate in a survey that we run in 2019 that there's roughly 150,000 people paying weekly fees to criminal groups in Medellin. And this is Medellin, which is a complex city, but in general, it's probably, there's less underreporting in Medellin than in many rural parts of Colombia. So these are the impacts on people being arrested for extortion charges. So of course, we would expect this to have some sort of delay. We don't see a clear pattern, but there's like a small, however imprecise indication that this might be coming up in the later periods. Then it gets quite noisy because of COVID and things changed quite a bit. So just to conclude, I guess first, it's hard to dispute that the peace in Colombia improved welfare in general throughout the world. And Muno Prem, Juan Vargas, and other colleagues, this is another paper in 2023 in the Journal of Human Resources, actually document this, how at least for instance, large positive impacts on human capital that have large positive externalities, so that there's that. But there's also these like naive announcements. This is actually unrelated to the peace process itself. It's just maybe announcements that are unaware of how people reacts to incentives in general. This had these unintended consequences. So, and this is where they find that this announcement ended up having an impact on the extension of coca crops across the country. And what we do here is we document how these negative externalities, like these negative impacts spill over to local fiscal capacity with a decreasing property tax revenues and a decreasing gasoline tax revenues. And overall, we believe that what this brings us is that there's a lot of challenges on building fiscal capacity where armed groups, criminal rule, illegal economies coincide and when people respond to these incentives in these ways. Thank you very much. Thank you. Thank you. Thank you.