The Effect of Mafia on Public Transfers
Organised crime is widely regarded as damaging to economic outcomes. This paper analyses the impact of organized crime on the allocation of public subsidies to businesses. We assemble an innovative data set on Italian mafia at municipality level and test whether mafia diverts public funding. We exploit exogenous variation at municipality level to instrument mafia activity and show that the presence of organized crime positively affects the probability of obtaining funding and the amount of public funds. Mafia is also found to lead to episodes of corruption in the public administration sector. A series of robustness checks confirms the above findings.
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