Essays in political economy

Field: Economics, Econometrics and Finance (Social Sciences)

The papers in this thesis study distortions and inefficiencies that impede the correct functioning of democratic systems. I specifically focus on two phenomena: organised crime and media bias. The first paper presents an analysis of the consequences of the collusion between criminal organisations and politicians on the allocation of public resources and the collection of fiscal revenues. To measure the presence of criminal organisations it exploits newly collected data on public spending, local taxes and elected politicians at the local level. Differences-in-differences estimates reveal that infiltrated local governments not only spend more on average on construction and waste management and less on police enforcement, but also collect fewer fiscal revenues. In addition, I uncover key elements of local elections associated with mafia-government collusion. In particular, Regression Discontinuity estimates show that infiltration is more likely to occur when right-wing parties win local elections. The second paper moves on to the study of media bias and persuasive communication. In democracies voters rely on media outlets to learn about politically salient issues. This raises an important question: how strongly can media affect public perceptions? This paper uses a natural experiment – the staggered introduction of the Digital TV signal in Italy – to measure the effect of media persuasion on the perceptions individuals hold. It focuses on crime perceptions and, combining channel-specific viewership and content data, this paper shows that the reduced exposure to channels characterized by high levels of crime reporting decreases individual concerns about crime. The effect is particularly strong for the elderly who are more exposed to television and less to other sources of information. Finally, it shows that such change in crime perceptions is likely to have relevant implication for voting behaviour. The third paper continues on the study of persuasive communication by investigating whether the amount and the type of news related to sovereign debt might have played a role in the triggering of the crisis by increasing the level of uncertainty among investors. In order to test these claims empirically, I collect a unique and new dataset on news from the main media outlets in a set of 5 European Countries from September 2007 to September 2014. I restrict my search to news related to sovereign debt and, in particular, to media stories related to political aspects of the debt. Time series and dynamic panel regressions reveal that, conditional on a full set of controls and falsification tests, the frequency of news is correlated to an increase in bond prices. Both time series and panel analysis reveal a certain extent of country heterogeneity in the effect. In particular, an increase in the number of news leads to an increase in bond yields of peripheral countries. Finally, this paper also shows how it is not just the amount of news that matters, but also their tone. More precisely, negative news in country i at time t − 1 increases significantly the sovereign bond yield of country i at time t. On the opposite positive news leads to a decrease in sovereign bond yields. In sum, the three chapters of this thesis aim to contribute to the academic study of organised crime and media bias. First, this thesis provides new conceptualisation in the study of these phenomena. Second, it exploits set of newly collected dataset which will eventually constitute a public good for all the researchers interested in the study of these topics. Finally, to overcome the difficult identification challenges that the above questions pose, this thesis contributes to the literature by proposing a set of rigorous ways to claim causality in the results.