Acconcia, A., Corsetti, G. and Simonelli, S.

Mafia and public spending: evidence on the fiscal multiplier from a quasi-experiment

American Economic Review

Vol. 104(7) pp. 2185-2209 (2014)

Abstract: A law issued to combat political corruption and Mafia infiltration 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 fiscal policy, and holding the tax burden of local residents constant—to be 1.5. Assuming that lagged spending is exogenous to current output brings the estimate of the overall multiplier up to 1.9. These results suggest that local spending adjustment may be quite consequential for local activity.

Keywords: Political processes, Rent seeking, Lobbying, Elections, Legislatures, Voting behavior, Fiscal policy, State and local taxation

JEL Codes: D72, E62, H71, K42

Author links: Giancarlo Corsetti  

Publisher's Link: https://doi.org/10.1257/aer.104.7.2185