Mafia and public spending: Evidence on the fiscal multiplier from a quasi-experiment
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Authors
Abstract
jats:p 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. (JEL D72, E62, H71, K42) </jats:p>
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Keywords
38 Economics, 3802 Econometrics, 3803 Economic Theory, 16 Peace, Justice and Strong Institutions
Journal Title
American Economic Review
Conference Name
Journal ISSN
0002-8282
1944-7981
1944-7981
Volume Title
104
Publisher
American Economic Association
Publisher DOI
Rights
DSpace@Cambridge license
Sponsorship
The work on this paper is part of PEGGED (Politics,
Economics and Global Governance: The European Dimensions), Contract no. SSH7-CT-2008-217559 within the
seventh Framework Programme for Research and Technological Development. Support from the Pierre Werner
Chair Programme at the European University Institute is also gratefully acknowledged.