Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment
AbstractA law issued to combat political corruption and Mafia infiltration of city councils in Italy has resulted in episodes of large, unanticipated, temporary contractions in local public spending. Using these episodes as instruments, we estimate the output multiplier of spending cuts at provincial level—controlling for national monetary and fiscal policy, and holding the tax burden of local residents constant—to be 1.5. Assuming that lagged spending is exogenous to current output brings the estimate of the overall multiplier up to 1.9. These results suggest that local spending adjustment may be quite consequential for local activity.
CitationAcconcia, Antonio, Giancarlo Corsetti, and Saverio Simonelli. 2014. "Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment." American Economic Review, 104 (7): 2185-2209. DOI: 10.1257/aer.104.7.2185
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E62 Fiscal Policy
- H71 State and Local Taxation, Subsidies, and Revenue
- K42 Illegal Behavior and the Enforcement of Law