The effect of mafia on public transfers
Organized crime is a worldwide, widespread phenomenon, which affects developing as well as developed countries, and entails deep economic and social consequences. The purpose of this study is to enhance our understanding of organized crime activities. By using an innovative data set on Sicilian mafia activity available at municipality level, we test whether firms located in municipalities with mafia-related crimes obtain more public subsidies. In order to deal with the endogeneity of the relationship, we explore the origins of mafia. We instrument current mafia activity with exogenous historical and geographical shifters of land productivity, i.e. rainfall in the XIX century and geographical features at municipality level. We provide evidence that the presence of mafia affects the allocation of public transfers: municipalities with mafia activity receive larger public funding. The estimated impact of mafia is also economically relevant and equals one standard deviation of the dependent variable. According to our estimates the presence of mafia increases the total amounts of funds by about 35% on average. A series of robustness checks confirms the above findings.
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