Organised Crime, Captured Politicians, and the Allocation of Public Resources

What is the impact of organised crime on the allocation of public resources and on tax collection? This paper studies the consequences of collusion between members of criminal organisations and politicians in Italian local governments. In order to capture the presence of organised crime, we exploit the staggered enforcement of a national law allowing the dissolution of a municipal government upon evidence of collusion between elected officials and the mafia. We measure the consequences of this ‘infiltration' of mafia groups within local governments by using newly collected data on public spending, local taxes and elected politicians at the local level. Difference-in-differences estimates reveal that infiltrated local governments spend more on average for construction and waste management, less for municipal police, and collect fewer taxes for waste and garbage. In addition, we uncover key elements of local elections associated with mafia-government collusion