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

  • Antonio Acconcia
  • Giancarlo Corsetti
  • Saverio Simonelli

We estimate the multiplier by relying on differences in spending in infrastructure across Italian provinces and an instrument identifying investment changes that are large and exogenous to local cyclical conditions. We derive our instrument from the an Italia law mandating the interruption of public work on evidence of ma.a in.ltration of city councils. Our IV estimates on cross sectional data allow us to address common problems in time series analysis, such as the risk of estimating spuriously high multipliers because of endogeneity and reverse causation, or the risk of confounding the e¤ects of .scal and monetary measures. While accounting for contemporaneous and lagged effects, and controlling for the direct impact of anti-ma.a measures on output, our results suggest a multiplier as high as 1.4 on impact, and 2 including dynamic effects.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2011/12.

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Date of creation: 2011
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Handle: RePEc:eui:euiwps:eco2011/12
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  1. Emi Nakamura & Jón Steinsson, 2011. "Fiscal Stimulus in a Monetary Union: Evidence from U.S. Regions," NBER Working Papers 17391, National Bureau of Economic Research, Inc.
  2. Clemens, Jeffrey & Miran, Stephen, 2010. "The effects of state budget cuts on employment and income," MPRA Paper 38715, University Library of Munich, Germany.
  3. JonasD.M. Fisher & Ryan Peters, 2010. "Using Stock Returns to Identify Government Spending Shocks," Economic Journal, Royal Economic Society, vol. 120(544), pages 414-436, 05.
  4. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
  5. Raffaela Giordano & Sandro Momigliano & Stefano Neri & Roberto Perotti, 2008. "The effetcs of fiscal policy in Italy: Evidence from a VAR model," Temi di discussione (Economic working papers) 656, Bank of Italy, Economic Research and International Relations Area.
  6. Robert J. Barro & Charles J. Redlick, 2011. "Macroeconomic Effects From Government Purchases and Taxes," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 51-102.
  7. Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2011. "Foresight and Information Flows," NBER Working Papers 16951, National Bureau of Economic Research, Inc.
  8. Karel Mertens & Morten O. Ravn, 2009. "Empirical evidence on the aggregate effects of anticipated and unanticipated US tax policy shocks," Working Paper Research 181, National Bank of Belgium.
  9. Valerie A. Ramey, 2011. "Identifying Government Spending Shocks: It's all in the Timing," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 1-50.
  10. Acconcia, Antonio & Immordino, Giovanni & Piccolo, Salvatore & Rey, Patrick, 2013. "Accomplice-Witness and Organized Crime: Theory and Evidence from Italy," TSE Working Papers 13-403, Toulouse School of Economics (TSE).
  11. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78 - 121.
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