The paper exploits the historical shock of Italian unification to study tax compliance. Italian unification in 1861 determined differential increments in the tax burden among areas of the country due to differences in pre-unitary taxation levels. We evaluate the impact of this shock on tax compliance, showing that historical variability in tax evasion reduced significantly in the following decades. The findings indicate that the ranking of compliance among provinces remained largely preserved and that the shock to the tax burden explains much of both historical and current variability in tax evasion.

In Italian regions hit by earthquakes, homeowners typically receive public funds to finance reconstruction. While these funds are strictly tied to reconstruction work, they are in part disbursed up front, leading to significant variation in cash on hand. We exploit this variation to study the effects of liquidity on relatively wealthy households’ consumption. We find a large and significant response in the first year that homeowners receive the cash and provide evidence that this response is driven by illiquid households with bank debt. Instead, we find no evidence that consumption responds to funds paid directly to firms, thus leaving households’ liquidity unaffected.

A stimulus programme allowed firms in Italy to receive tax credits for R&D expenditure in 2009. Among traditional firms, liquidity is relevant to the response to the stimulus: recipients firms with relative large cash holdings raised R&D expenditure, while those with low liquidity did not vary it. High‐tech firms did not change their total R&D, consistent with their tendency to smooth R&D expenditure through time, though they changed its composition in favour of outsourcing activity and to the detriment of employment. When the fiscal stimulus pushed R&D higher, it also induced a positive transitory effect on the firm’s performance.

A law issued to combat political corruption and Mafia infiltration of city councils in Italy has resulted in episodes of large, unanticipated, temporary contractions in local public spending. Using these episodes as instruments, we estimate the output multiplier of spending cuts at provincial level—controlling for national monetary and fiscal policy, and holding the tax burden of local residents constant—to be 1.5. Assuming that lagged spending is exogenous to current output brings the estimate of the overall multiplier up to 1.9. These results suggest that local spending adjustment may be quite consequential for local activity.

We develop an agency model of organized crime accounting for the main trade-offs involved in the introduction of an accomplice-witness program. We characterize the optimal policy and identify its main determinants in a framework where public officials can be dishonest. Our predictions are tested by using data for Italy before and after the introduction of the 1991 accomplice-witness program. As predicted by the model and the earlier antitrust literature, the program appears to have strengthened deterrence and enhanced prosecution. Moreover, consistent with a novel prediction of our theory, the evidence suggests that the program efficacy is affected by the judicial system efficiency.

This paper relies on sectoral-level data to interpret aggregate fluctuations of labor productivity and employment in the US as due to exogenous disturbances. By using a dynamic factor model to investigate the variability in labor productivity and hours across the 2-digit US manufacturing industries, two kinds of shocks emerge as quantitatively relevant during the postwar period: technology shocks to the production of equipment and economy-wide shocks. Our findings suggest that looking at sectors is key to understanding the nature and the transmission of aggregate shocks.

The impact on vertical contracting of a type-dependent reservation utility is investigated within a sequential monopolies environment with asymmetric information. The welfare and private properties of contracts controlling both the retail price and the sales level are compared with those restricting only sales. When firms choose contracts non-cooperatively, retail price restrictions are desirable for the up-stream supplier although detrimental to consumers, whenever the retailer reservation utility has a relevant impact on optimal contracts. If this impact is relatively weak and contracts are chosen cooperatively, vertical price control fails to maximize firms’ joint-profit although it would be beneficial to consumers.

Investment decisions are usually affected by what firms perceive as government supply constraints: when a firm considers whether to increase its capital stock it takes into account possible constraints due to the lack of public productive services. Introducing this consideration in a simple growth model with public services subject to congestion, I derive the possibility of low development traps for economies which start with a low level of private capital stock. At the same time, multiple equilibria, that is different long-run outcomes consistent with the same fundamentals, arise. Under some circumstances, an increase of the flow of public productive services could drive away the economy from the poverty trap. For growing economies, growth rate is positively related to the share of public spending on productive services. Empirical evidence at country level accords with implications of the model.