Pedro Luz de Castro

What determines when territorial control translates into fiscal extraction? The literature on state formation traditionally links fiscal capacity to territorial control. This paper examines what happens to fiscal extraction when assumptions of sovereignty are relaxed. I argue that control of territory only grants the power to extract resources from local markets when there is economic captivity and consumers cannot move their transactions elsewhere. This concern is particularly salient in contexts with partial sovereignty, in which borders are porous and local rulers cannot rely on outside cooperative institutions to enforce fiscal claims outside of their territory. I test this argument in criminal territories in Rio de Janeiro using two comparable goods regulated by the same agency that differ in their place of consumption. Liquefied petroleum gas (LPG) is consumed at home and transported in heavy cylinders, whereas gasoline can be purchased and pumped at any gas station across the city. Combining retail and wholesale price data with historical armed group maps, I use staggered first observed transitions of retailer locations into criminal governance to estimate the effect on prices and margins. These transitions increase LPG retail prices by 2 percent and, among vendors that report acquisition costs, estimated gross margins by 20 percent, while producing no comparable effect on gasoline. These findings support the argument that economic captivity is a scope condition for local fiscal extraction.