Politically connected cities: Italy 1951-1991

The paper estimates the political connection premium for Italian cities tracked during the second half of the 1900s, when the role of the state in the economy was very widespread. It leverages the peculiar features of the gridlocked political landscape in place between the end of World War II and the fall of the Berlin wall, during which most influential politicians remained in charge for a very long time. We focus on population, a well-celebrated proxy of local development in the long run, and compare connected cities - small areas surrounding birthplaces of both prime ministers and leaders of the parties in power - with unconnected municipalities that show, thanks to a propensity score matching procedure, very similar baseline characteristics, including lagged outcome. Our results indicate that politically connected cities gained a population premium of 7.4% between 1951 and 1991. When the connection ends, the difference in growth rate fades away. We also document that birthplaces of powerful politicians benefit from infrastructure investments, other ordinary and special-purpose public expenditures, and the location of plants by state-owned enterprises. The political connection favors industrialization, and raises employment and wages, but crowds out private entrepreneurship. The paper also illustrates that local communities repay the benefits gained through voting. Finally, it turns out that agglomeration economies in treated municipalities were not higher, thus suggesting that, if anything, place-based interventions linked to political connections have not been output-enhancing from a nationwide point of view.