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

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, the number of firms, and industrial real estate prices.The effects are concentrated in Mafiadominated sectors and in municipalities where fewer incumbents are re-elected.The dismissals generate large economic returns by weakening the Mafia and fostering trust in local institutions.The analysis suggests that CCDs represent an effective intervention for establishing legitimacy and spurring economic activity in areas dominated by organized crime.