Organised Crime, Captured Politicians and the Allocation of Public Resources

This paper studies the consequences of collusion between members of criminal organisations and politicians in Italian local governments. In order to capture the presence of organised crime, we exploit the staggered enforcement of a national law allowing for dissolution of a municipal government upon evidence of collusion between elected officials and the mafia. We measure the consequences of this collusion by using newly collected data on public spending, local taxes and elected politicians at the local level. Differences-in-differences estimates reveal that infiltrated local governments not only spend more on average on construction and waste management and less on police enforcement, but also collect fewer fiscal revenues. In addition, we uncover key elements of local elections associated with mafia-government collusion. In particular, Regression Discontinuity estimates show that infiltration is more likely to occur when right-wing parties win local elections.