Abstract

What is the impact of organised crime on the allocationof public resources and on tax collection? This paper studies the consequencesof collusion between members of criminal organisations and politicians inItalian local governments. In order to capture the presence of organised crime,we exploit the staggered enforcement of a national law allowing the dissolutionof a municipal government upon evidence of collusion between elected officialsand the mafia. We measure the consequences of this collusion by using newlycollected data on public spending, local taxes and elected politicians at thelocal level. Difference-in-differences estimates reveal that infiltrated localgovernments spend more on average for construction and waste management, lessfor public transport and lighting, less for municipal police, and collect fewertaxes for waste and garbage. In addition, we uncover key elements of localelections associated with mafia-government collusion. In particular, RegressionDiscontinuity estimates show that infiltration is more likely to occur whenright-wing parties win local elections.