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

26 Pages Posted: 18 Apr 2011

See all articles by Antonio Acconcia

Antonio Acconcia

University of Naples Federico II - Department of Economics

Giancarlo Corsetti

University of Cambridge; University of Rome III - Department of Economics; Centre for Economic Policy Research (CEPR)

Saverio Simonelli

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF)

Date Written: April 2011

Abstract

We estimate the multiplier relying on differences in spending in infrastructure across Italian provinces and an instrument identifying investment changes that are large and exogenous to local cyclical conditions. We derive our instrument from the Law mandating the interruption of public work on evidence of mafia infiltration of city councils. Our IV estimates on cross sectional data allow us to address common problems in time series analysis, such as the risk of estimating spuriously high multipliers because of endogeneity and reverse causation, or the risk of confounding the effects of fiscal and monetary measures. Accounting for contemporaneous and lagged effects, and controlling for the direct impact of anti-mafia measures on output, our results suggest a multiplier as high as 1.4 on impact, and 2 including dynamic effects.

Keywords: government spending, instrumental variables, multiplier

JEL Classification: C26, E62, H54

Suggested Citation

Acconcia, Antonio and Corsetti, Giancarlo and Simonelli, Saverio, Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-Experiment (April 2011). CEPR Discussion Paper No. DP8305. Available at SSRN: https://ssrn.com/abstract=1810270

Antonio Acconcia (Contact Author)

University of Naples Federico II - Department of Economics ( email )

Via Cintia Monte S. Angelo
Napoli, 80126
Italy

Giancarlo Corsetti

University of Cambridge ( email )

University of Rome III - Department of Economics ( email )

via Ostiense 139
Rome, 00154
Italy
+39 06 5737 4056 (Phone)
+39 06 5737 4093 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Saverio Simonelli

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cinthia - Monte S. Angelo
Napoli, Napoli 80126
Italy
0039 081 675366 (Phone)

HOME PAGE: http://www.csef.it/Simonelli

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy

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