Sweeping the dirt under the rug: measuring spillovers of an anti-corruption measure

Abstract

This article studies the spillover effects of an Italian anti-corruption measure targeting municipalities colluding with organized crime. We assess its impact on neighboring municipalities’ procurement practices. Our findings reveal that neighboring municipalities increase contracts falling below the 40,000 Euro threshold, which bear lighter evidentiary requirements, and are consequently harder to monitor. The neighboring municipalities strategically evade stricter regulations by fragmenting major projects into different sub-threshold contracts. Our analysis presents three evidence that this response stems from greater law enforcement monitoring. First, the number of arrests increases in the area after the implementation of the measure. Then, we demonstrate that the spillovers are more pronounced in areas with greater prior law enforcement activity. Lastly, we illustrate how neighboring municipalities react to the dissolution by reducing their engagement in activities that are more susceptible to monitoring. This is evident in their decreased participation in renegotiating public works contracts (JEL D730, H570, K420).