Abstract:
Can negotiated peace settlements promote fiscal capacity in post-conflict countries? We explore this question in the context of the 2016 peace agreement in Colombia, after which more than 6,000 insurgents collectively demobilized and a series of peace zones was created. Leveraging the uneven implementation of the peace agreement programmes, we estimate their impact on fiscal outcomes using a 'difference-in-discontinuities' design. We find that municipalities selected to be recipients of programmes increased their local revenues compared to similar neighbouring non-eligible municipalities. In particular, local revenues in the form of property taxes increased significantly. The effect on the extensive margin in the case of property tax revenue is approximately 30%. We find a similar, albeit smaller, impact on total expenditures, and this is associated with a differential increase in fiscal deficits. We do not find an impact on other sources of funding, such as capital revenues or fiscal transfers from the central government. Overall, the evidence supports the argument that peace building is crucial to promoting local fiscal capacity.