| Summary: | <p>Based on Charles Tilly’s definition of state-making, this article develops the concept of <em>legalized extortion</em> to understand the expansion of the state’s fiscal capacity towards informal street vending. It presents an in-depth analysis of the case of the textile cluster of Gamarra (Lima, Peru), where the local government chose to profit from informal street vending by providing them labor security in exchange for extra ‘taxes.’ The study reveals the construction of a state-led governance regime where the boundary between taxation and extortion is blurred. It delves into the co-governance arrangements and extra-legal practices, and looks into the structural factors that sustain this governance regime. In doing so, the study contributes to theoretical debates about the governance of informal economies in Latin American cities and provides evidence about how the state’s fiscal capacity is employed for managing the use of public spaces for informal street trade.</p>
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