Organised Crime, Captured Politicians and the Allocation of Public Resources

Abstract

What is the impact of collusion between members of criminal organisations and politicians on local public finances, in contexts in which organised crime is well-rooted? This paper addresses this question by focusing on local governments of Southern Italy, over the period 1998-2016. In order to capture the presence of organised crime, we exploit the enforcement of a national law allowing the dissolution of a municipal government upon evidence of collusion between elected officials and the mafia. We measure the consequences of this infiltration of mafia groups within local governments by using data on local public finances at the municipality level. Difference-in-differences estimates reveal that captured municipalities commit on average more resources for investments in construction and waste management and are less effective in collecting taxes for waste and garbage. This indicates that organise crime groups exploit the collusion with local politicians in order to distort the allocation of public resources towards key sectors of strategic interest for the criminal business.

Keywords: organised crime, collusion, public spending, Italy

JEL Classification: K42, H72, D72