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Doing Business Below the Line: Screening, Mafias and Public Funds

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  • Gianmarco Daniele
  • Gemma Dipoppa

Abstract

In 2013, the Italian government reinforced a screening mechanism to detect mafia-connected firms and ensure that their applications for subsidies over 150,000 euros are unsuccessful. We exploit this discontinuity to test whether (and how many) firms self-select below the threshold to avoid the screening after the law was strengthened. We find a large increase in subsidies just below the threshold and after the approval of the law, suggesting that about 3.8% of firms applying for subsidies reduced rent seeking to avoid police screening. In line with this interpretation, sorting is larger in mafia-affected cities and firms sorting at the 150,000 euros threshold display typical features of criminal firms. These findings shed light on (i) the extent to which mafia-connected firms misappropriate public funds; (ii) their strategic behavior in avoiding anti-corruption policies; (iii) the effectiveness of the new law at screening mafia-related firms out of the application process; (iv) the leverages policymakers can use to identify crime displacement.

Suggested Citation

  • Gianmarco Daniele & Gemma Dipoppa, 2018. "Doing Business Below the Line: Screening, Mafias and Public Funds," BAFFI CAREFIN Working Papers 1898, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
  • Handle: RePEc:baf:cbafwp:cbafwp1898
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    Cited by:

    1. Francesca Calamunci & Francesco Drago, 2020. "The Economic Impact of Organized Crime Infiltration in the Legal Economy: Evidence from the Judicial Administration of Organized Crime Firms," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 6(2), pages 275-297, July.
    2. Lavinia Piemontese, 2021. "Uncovering Illegal and Underground Economies: The Case of Mafia Extortion Racketeering," Working Papers halshs-02928546, HAL.
    3. Drago, Francesco & Calamunci, Francesca, 2020. "The economic impact of organized crime infiltration in the legal economy: evidence from the judicial administration of organize," CEPR Discussion Papers 14326, C.E.P.R. Discussion Papers.
    4. Francesca M. Calamunci, 2022. "What happens in criminal firms after godfather management removal? Judicial administration and firms’ performance," Small Business Economics, Springer, vol. 58(1), pages 565-591, January.
    5. Lavinia Piemontese, 2020. "Uncovering Illegal and Underground Economies: The Case of Mafia Extortion Racketeering," Working Papers 2025, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.

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