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American Economic Review Vol. 104 No. 7 2014

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

Antonio Acconcia1; Giancarlo Corsetti2; Saverio Simonelli1

1 Department of Economics and Statistics, University of Naples Federico II, Via Cintia, 80126 Napoli, Italy, and CSEF (e-mail: ) · 2 Faculty of Economics, Cambridge University, Sidgwick Avenue, Cambridge, United Kingdom CB3 9DD, and CEPR (e-mail: )

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.

DOI
10.1257/aer.104.7.2185
Volume
104
Issue
7
Pages
2185-2209
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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