December 2020
Alessandra Fenizia and Raffaele Saggio
Abstract: This paper evaluates the long-run economic impact of the fight against organized crime. It uses rich administrative data from Italy and studies one of the most aggressive policies aimed at combating criminal organizations: the city council dismissal. Under this policy, local administrations believed to be infiltrated by the Mafia are dismissed by the central government and the municipality is then administrated by a team of public servants appointed by the central government for approximately two years. Using a matched difference-in-differences design, we find that this policy fosters economic growth. Specifically, the city council dismissal increases formal employment by 16.9% nine years after the dismissal and this effect appears to be partially driven by the entry of new workers in the formal sector. Treated municipalities also display higher economic dynamism and a surge in industrial real estate prices in the aftermath of the intervention. These effects appear to be mediated by an increase in the quality of local politicians elected after the city council dismissal. We show that these newly elected politicians raise local tax compliance and were able to increase expenditures on roads and infrastructures. Overall, our results imply that there are significant long-run economic benefits associated with targeted law enforcement actions against criminal organizations.
JEL Codes: D73, G38, K42
Key Words: corruption, mafia, organized crime
