Politically connected cities: Italy 1951–1991

Abstract

This paper documents the higher growth experienced by politically connected municipalities in Italy between the end of World War II and the fall of the Berlin Wall. It leverages the peculiarities of the institutional setting and compares population growth in connected and unconnected municipalities with similar characteristics at the beginning of the period. Our results indicate a population premium of 7.4% over 40 years. Connected municipalities benefited from the location of state-owned enterprises, more infrastructures and higher public spending. Political connections favored industrialization, higher employment and wages, but crowded out private entrepreneurship. Local communities repaid these benefits through voting. There is no evidence of higher agglomeration economies in politically connected cities, suggesting that political connections have not been output-enhancing from a nationwide perspective. The difference in population growth rates fades away after the end of the connections.