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August 6, 2024

Curtailing Mafia influence

Dismissing corrupt city councils promoted long-run economic benefits in Italian municipalities.

Tyler Smith

Source: Andrei Postolache, CC BY 2.0

Italy has long struggled to curtail the influence of organized crime. The Mafia has successfully infiltrated local governments both in its strongholds (like Sicily, Calabria, and Campania) and, more recently, in northern regions.

In a paper in the American Economic Review, authors Alessandra Fenizia and Raffaele Saggio found that an aggressive policy initiated in the 1990s by the Italian central government—city council dismissals (CCDs)—reestablished the legitimacy of local governments and spurred economies in areas dominated by organized crime.

CCDs allow the central government to replace the mayor, executive committee, and city council with experienced career civil servants in local governments deemed to be under the influence of the Mafia. These appointed commissioners run a municipality for 24 to 36 months until new elections occur. 

The authors analyzed over two hundred CCD interventions between 1991 and 2016, using a difference-in-differences technique applied to administrative data on workers, firms, real estate prices, and public finances. Figure 5 from their paper compares the impact of CCDs related to Mafia infiltration to CCDs related to other matters, such as city council resignations or violations of the law.

Figure 5 from Fenizia and Saggio (2024)

The y-axes show the municipality-level logarithm of employment (panel A), the logarithm of the number of firms (panel B), the logarithm of total wages paid to all individuals employed in a municipality (panel C), and the logarithm of average wages (panel D). The x-axes indicates the time relative to a dismissal. The blue squares represent the estimates of CCDs due to Mafia infiltration compared to control municipalities, and the orange triangles represent estimates of CCDs unrelated to Mafia infiltration. The vertical brackets indicate 95 percent confidence intervals.

Panel A shows that there was little difference between treated and control municipalities in the years leading up to a dismissal. In the first two years following a CCD intervention related to a Mafia infiltration, municipal employment grew slightly, but then started increasing sharply three years after the intervention, suggesting a significant long-run impact. This is in contrast to modest impact on municipalities that saw CCDs unrelated to the Mafia. Panel B shows that the number of firms follows a similar pattern to the number of employees. 

Panel C shows that revamping city councils did not increase the wage bill in municipalities with either type of CCD intervention. Instead, employment increases were offset by wage decreases, as seen in Panel D, in Mafia-related dismissals. The authors find that the decrease in average wage was primarily driven by the entry of new workers employed in low-paying jobs.

Overall, the findings suggest that CCDs can produce large economic gains when they target municipalities infiltrated by organized crime.