Doing Business Below the Line: Screening, Mafias and Public Funds

80 Pages Posted: 12 Dec 2018

See all articles by Gianmarco Daniele

Gianmarco Daniele

Bocconi University; Baffi Carefin Centre, Bocconi University

Gemma Dipoppa

University of Pennsylvania - Department of Political Science

Date Written: December 2018

Abstract

In 2013, the Italian government reinforced a screening mechanism to detect mafia-connected firms and ensure that their applications for subsidies over 150,000 euros are unsuccessful. We exploit this discontinuity to test whether (and how many) firms self-select below the threshold to avoid the screening after the law was strengthened. We find a large increase in subsidies just below the threshold and after the approval of the law, suggesting that about 3.8% of firms applying for subsidies reduced rent seeking to avoid police screening. In line with this interpretation, sorting is larger in mafia-affected cities and firms sorting at the 150,000 euros threshold display typical features of criminal firms. These findings shed light on (i) the extent to which mafia-connected firms misappropriate public funds; (ii) their strategic behavior in avoiding anti-corruption policies; (iii) the effectiveness of the new law at screening mafia-related firms out of the application process; (iv) the leverages policymakers can use to identify crime displacement.

Suggested Citation

Daniele, Gianmarco and Dipoppa, Gemma, Doing Business Below the Line: Screening, Mafias and Public Funds (December 2018). BAFFI CAREFIN Centre Research Paper No. 2018-98. Available at SSRN: https://ssrn.com/abstract=3299552 or http://dx.doi.org/10.2139/ssrn.3299552

Gianmarco Daniele (Contact Author)

Bocconi University ( email )

Baffi Carefin Centre, Bocconi University ( email )

Via Roentgen 1
Milan
Italy

Gemma Dipoppa

University of Pennsylvania - Department of Political Science ( email )

Stiteler Hall
Philadelphia, PA 19104
United States

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