Doing Business Below the Line: Screening, Mafias and Public Funds

Gianmarco Daniele and Gemma Dipoppa

No 1898, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: In 2013, the Italian government reinforced a screening mechanism to detect mafia-connected firms and ensure that their applications for subsidies over 150,000 euros are unsuccessful. We exploit this discontinuity to test whether (and how many) firms self-select below the threshold to avoid the screening after the law was strengthened. We find a large increase in subsidies just below the threshold and after the approval of the law, suggesting that about 3.8% of firms applying for subsidies reduced rent seeking to avoid police screening. In line with this interpretation, sorting is larger in mafia-affected cities and firms sorting at the 150,000 euros threshold display typical features of criminal firms. These findings shed light on (i) the extent to which mafia-connected firms misappropriate public funds; (ii) their strategic behavior in avoiding anti-corruption policies; (iii) the effectiveness of the new law at screening mafia-related firms out of the application process; (iv) the leverages policymakers can use to identify crime displacement.

Pages: 80 pages
Date: 2018
New Economics Papers: this item is included in nep-eur
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Citations: View citations in EconPapers (9)

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