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12:30 - 13:30 2 November 2011

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


Room 321 | Drayton House (link Map)
30 Gordon Street | London | WC1H 0AN | United Kingdom

Open to: Academic | Student
Ticketing: Open

Speaker information

Giancarlo Corsetti, University of Cambridge

A law issued to contrast political corruption and mafia infiltration of city councils in Italy has resulted in episodes of unanticipated, large, temporary contractions in public spending. Using these episodes and province-level data, we estimate the multiplier when spending cuts cannot be compensated by monetary expansions, holding the tax burden constant. In our IV-estimates, this multiplier is 1.2. The effects of lagged spending, under the assumption that this is exogenous to current output, bring it to 1.8. These results are consistent with the fiscal transmission in models of small open economies where constraints on monetary policy interact with financial imperfections.


Department of Economics - Reception
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Seminar paper