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Politicians at work. The private returns and social costs of political connections

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  • Federico Cingano

    ()
    (Bank of Italy, Economic Research Department)

  • Paolo Pinotti

    ()
    (Bank of Italy, Economic Research Department)

Abstract

We quantify the private returns and social costs of political connections exploiting a unique longitudinal dataset that combines matched employer-employee data for a representative sample of Italian firms with administrative archives on the universe of individuals appointed in local governments over the period 1985-97. According to our results, the revenue premium granted by political connections amounts to 5% on average, it is obtained through changes in domestic sales but not in exports, and it is not related to improvements in firm productivity. The connection premium is positive for upstream producers for the public administration only, and larger (up to 25%) in areas characterized by high public expenditure and high levels of corruption. These findings suggest that the gains in market power derive from public demand shifts towards politically connected firms. We estimate such shifts reduce the provision of public goods by approximately 20%.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 709.

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Date of creation: May 2009
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Handle: RePEc:bdi:wptemi:td_709_09

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Keywords: political connections; social welfare; productivity; employer-employee data;

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Conexões Políticas II
    by Roberto Ushisima in Empresas e Mercados on 2010-10-31 02:23:00
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Cited by:
  1. Maria Rosaria Carillo & Vincenzo Lombardo & Alberto Zazzaro, 2013. "Family connections and entrepreneurial human capital: The uncertain destiny of proprietary capitalism," Mo.Fi.R. Working Papers 89, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  2. Anna Menozzi & María Gutiérrez Urtiaga & Davide Vannoni, 2010. "Board Composition, Political Connections and Performance in State-Owned Enterprises," Working papers 9, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  3. Guo, Di & Jiang, Kun & Kim, Byung-Yeon & Xu, Chenggang, 2014. "Political economy of private firms in China," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 286-303.
  4. Franco Amatori & Matteo Bugamelli & Andrea Colli, 2011. "Italian Firms in History: Size, Technology and Entrepreneurship," Quaderni di storia economica (Economic History Working Papers) 13, Bank of Italy, Economic Research and International Relations Area.
  5. Leandro DÂ’Aurizio & Livio Romano, 2013. "Family firms and the Great Recession: out of sight, out of mind?," Temi di discussione (Economic working papers) 905, Bank of Italy, Economic Research and International Relations Area.
  6. Murray, Cameron K., 2012. "Markets in political influence: rent-seeking, networks and groups," MPRA Paper 42070, University Library of Munich, Germany.
  7. Carretta, Alessandro & Farina, Vincenzo & Gon, Abhishek & Parisi, Antonio, 2011. "Politicians “on board”! Do political connections affect banking activities in Italy?," MPRA Paper 33549, University Library of Munich, Germany.
  8. Amore, Mario Daniele & Bennedsen, Morten, 2013. "The value of local political connections in a low-corruption environment," Journal of Financial Economics, Elsevier, vol. 110(2), pages 387-402.

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