Eroding civic capital: how persistent organized crime diminishes tax compliance

Abstract What is the long-term effect of organized crime presence on civic capital? By leveraging novel tax compliance and organized crime data, this study investigates this question within the Italian landscape from the 1950s to the 2000s. We exploit the forced resettlement law that compelled organized crime members living in the South of Italy to resettle in the Centre-North area of the country. Employing a difference-in-differences estimation strategy, estimates reveal that sustained exposure to mafia presence reduces TV tax compliance. Exploring possible mechanisms, we find that municipalities exposed to the forced resettlement law show more firms in strategic sectors for organized crime infiltration, and more episodes of extortion and labor racketeering