Cohesion or collusion? EU funds in places with corrupt local institutions

Marco Di Cataldo, Elena Renzullo and Andrés Rodríguez-Pose

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper provides the first analysis of how local institutional quality affects the distribution of EU funds across private beneficiaries, public entities, and local governments. Using high-quality Italian administrative data on city council dismissals due to collusion with organised crime, we examine whether corruption affects municipal control over EU resources. We apply a staggered difference-in-differences model and event studies and find that corrupt local governments receive significantly fewer EU funds for their own operations. However, this is not a consequence of efficient corruption detection, but rather a strategic choice. Corrupt administrations avoid larger EU projects to sidestep stricter anti-mafia regulations. This distortion weakens Cohesion Policy’s impact, deprives communities of critical investment, and hampers local economic growth. While Italy’s anti-mafia laws appear effective in blocking criminal access to EU funds, our findings expose the adaptability of organised crime, which simply switches its operations below existing regulatory thresholds. The takeaway is clear: good institutions matter. Where corruption thrives, EU funds do not disappear entirely, but they flow differently, fundamentally to smaller, more opaque projects. Stronger oversight is essential to ensure that Cohesion Policy delivers on its promise.

Keywords: quality of institution; EU cohesion policy; city council dismissals; organised crime (search for similar items in EconPapers)
JEL-codes: H11 H70 H77 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2026-05-01
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Published in Journal of Economic Behavior & Organization, 1, May, 2026, 245. ISSN: 0167-2681

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https://researchonline.lse.ac.uk/id/eprint/137959/ Open access version. (application/pdf)

Related works:
Journal Article: Cohesion or collusion? EU funds in places with corrupt local institutions (2026)
Working Paper: Cohesion or collusion? EU funds in places with corrupt local institutions (2025)
Working Paper: Cohesion or collusion? EU funds in places with corrupt local institutions (2025)
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