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

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  • Antonio Acconcia
  • Giancarlo Corsetti
  • Saverio Simonelli

Abstract

We estimate the multiplier by 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 an Italia law mandating the interruption of public work on evidence of ma.a in.ltration 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 e¤ects of .scal and monetary measures. While accounting for contemporaneous and lagged effects, and controlling for the direct impact of anti-ma.a measures on output, our results suggest a multiplier as high as 1.4 on impact, and 2 including dynamic effects.

Suggested Citation

  • Antonio Acconcia & Giancarlo Corsetti & Saverio Simonelli, 2011. "Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment," Economics Working Papers ECO2011/12, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2011/12
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    More about this item

    Keywords

    Government Spending; Multiplier; Instrumental Variables.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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