Municipal Socialism or Municipal Capitalism? The Performance of Local Public Enterprises in Italy

Abstract

This paper evaluates the performance of Italian local public enterprises (LPEs) with respect to their private sector counterparts. We address the following questions: i) do LPEs perform worse than (comparable) private firms?; ii) does the performance gap depend on the ownership structure (the share held by the public) or on the market structure (the degree of competition in the sector)?; iii) which are the main determinants of LPEs' performance in terms of productivity? The main findings – which are robust to the possible endogeneity of the ownership structure – are as follows: i) LPEs perform less well than private companies by about 8 percent in terms of TFP; ii) although both ownership structure and market structure matter, our results suggest that the ownership structure is more important; and iii) the performance gap of LPEs with respect to private firms seems to be driven by over-capitalization rather than by over-employment.

Keywords: local public firm, firm performance, instrumental variables

JEL Classification: L33, L25, H42, C26