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Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment

Author

Listed:
  • Antonio Acconcia
  • Giancarlo Corsetti
  • Saverio Simonelli

Abstract

A 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.

Suggested Citation

  • Antonio Acconcia & Giancarlo Corsetti & Saverio Simonelli, 2014. "Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment," American Economic Review, American Economic Association, vol. 104(7), pages 2185-2209, July.
    • Handle: RePEc:aea:aecrev:v:104:y:2014:i:7:p:2185-2209
    Note: DOI: 10.1257/aer.104.7.2185
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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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