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

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Abstract

A law issued to combat political corruption and ma.a in.ltration 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 .scal policy, and holding the tax burden of local res- idents constant – to be 1.2. The effects of lagged spending, assumed exogenous to current output, bring this estimate up to 1.8. These results suggest that local spending adjustment may be quite consequential for local activity.

Suggested Citation

  • Antonio Acconcia & Giancarlo Corsetti & Saverio Simonelli, 2011. "Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment," CSEF Working Papers 281, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 04 Feb 2013.
    • Handle: RePEc:sef:csefwp:281
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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