Organized Crime and Economic Growth: Evidence from Municipalities Infiltrated by the Mafia

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This paper studies the long-run economic impact of dismissing city councils infiltrated by organized crime. Applying a matched difference-in-differences design to the universe of Italian social security records, we find that city council dismissals (CCDs) increase employment by 16.9% over nine years. The employment gains are driven primarily by municipalities that experience large changes in the composition of local politicians. Newly elected politicians improve tax compliance and appear to increase the share of the budget devoted to roads and infrastructure. Increases in real economic activity caused by the CCD are capitalized in higher local industrial real estate prices. Overall, the results imply that there are high returns to targeted law enforcement actions against criminal organizations.