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Strategic Bankruptcies. Do Smart Politicians Do It Better?

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  • Massimo Bordignon
  • Davide Cipullo
  • Gilberto Turati

Abstract

We study the reaction of low vs. high-skilled politicians to a reform, approved in Italy in 2011, that introduces stringent individual financial and career sanctions to local administrators who are judged responsible for their municipality’s bankruptcy. To this aim, we leverage exogenous variation induced by close elections between a mayoral candidate who holds a college degree and a mayoral candidate who does not. After the introduction of sanctions, skilled politicians tend to declare bankruptcy with a higher probability than low-skilled politicians. The effect is concentrated in municipalities in which the financial state of distress was not advocating for a bankruptcy. Our findings document that individual sanctions against politicians may backfire if strategic considerations are not taken into account properly.

Suggested Citation

  • Massimo Bordignon & Davide Cipullo & Gilberto Turati, 2025. "Strategic Bankruptcies. Do Smart Politicians Do It Better?," CESifo Working Paper Series 11930, CESifo.
    • Handle: RePEc:ces:ceswps:_11930
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    Keywords

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    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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