How can governments reduce corruption and fight organized crime? In this paper, we study the effects of a law aimed at preventing the allocation of subsidies to firms directly or indirectly linked to criminal organizations in Italy. We exploit the presence of a threshold, determining whether the law is enforced, to test if firms self-select below the threshold in order to avoid the anti-mafia law enforcement. We provide evidence of this effect especially in sectors where criminal organizations are notably more active and only after a strengthening of the law setting. The effects are heterogenous in respect to the types of funds and the presence of criminal organizations. Self-selection below the threshold is not correlated with standard measures of mafia presence. This puzzling finding might be explained by the fact that in areas where mafias are more pervasive, criminals might use different strategies to circumvent the law. We provide some evidence of this mechanism showing that in such areas law avoidance takes place within public procurements, in which a local authority is in charge of apply the anti-mafia law.
15.03.2018 | 15:00 - 16:30
ZEW – Leibniz-Zentrum für Europäische Wirtschaftsforschung
L 7, 1 68161 Mannheim