What happens when EU funding reaches places where local governments collude with organised crime? Marco Di Cataldo, Elena Renzullo and Andrés Rodríguez Pose present new research from Italy showing that while anti-mafia regulations have limited the scope of organised criminality in these areas, collusion continues to have an important impact on the effectiveness of EU investment.
The European Union’s Cohesion Policy is designed to reduce regional disparities and foster economic development. But what happens when these funds reach places where local institutions are compromised by collusion with organised crime? In contexts where organised crime infiltrates local governments, public investment does not simply disappear. It may instead be redirected in subtle but consequential ways.
A growing body of research shows that institutional quality shapes how effectively EU funds translate into growth. Yet we still know surprisingly little about how collusion affects the allocation of these resources. Do colluding local governments capture more funds and misuse them? Or are they effectively sidelined? And crucially, do they shape how funds are distributed across public and private beneficiaries?
Mafia and local governments in Italy
In a new study, we address these questions using detailed administrative data from Italy, focusing on municipalities where local governments have been dismissed for collusion with organised crime.
Measuring collusion is notoriously difficult. Rather than relying on perception-based indicators, we use a concrete institutional benchmark: official dismissals of municipal governments due to mafia infiltration under Italy’s anti-mafia law (mapped in Figure 1a). These dismissals provide a rare opportunity to observe a clear deterioration in institutional quality resulting from collusion between local officials and organised crime and to track how EU funds behave before and after collusion takes hold.
Figure 1: Infiltrated local governments and EU projects in Italian municipalities
Note: For more information, see the authors’ recent study in the Journal of Economic Behavior & Organization.
Drawing on highly granular data on EU funded projects, covering around 1.5 million projects between 2007 and 2020, we trace not only how much funding municipalities receive (Figure 1b) but also who ultimately benefits from it.
A first striking result is that collusion with mafia-like activities does not significantly reduce the overall amount of EU funding flowing into a municipality. However, a very different picture emerges once we examine how that funding is allocated.
Municipalities governed by administrations later dismissed for collusion receive substantially less support for projects allocated directly to local governments, around 93% less on average than comparable municipalities with no evidence of collusion. Importantly, this pattern is not confined to sectors traditionally associated with organised crime, such as construction or waste management.
It extends to a broad range of policy areas, including social services and local infrastructure, suggesting a more general distortion in the way public investment is structured. By contrast, funding directed to private actors or other public bodies remains largely unchanged. In other words, EU money still arrives, but it largely bypasses local governments in colluding municipalities.
A strategic response to regulation
At first glance, this may seem counterintuitive. If collusion is present, one might expect local authorities to divert more public resources, not less. The study points to a very different mechanism.
A natural explanation would be that colluding local governments are simply less capable, lacking the administrative capacity, technical expertise or political competence required to secure EU funding. However, the evidence does not support this view.
Across a wide range of indicators, including education, experience and occupational background, politicians and local bureaucracies in colluding municipalities look remarkably similar to those in municipalities without evidence of collusion. In other words, these municipalities are no less capable of attracting EU funds. Instead, the findings point to a strategic response to regulation.
In Italy, EU funded projects above a certain financial threshold, around €150,000, trigger stricter anti-mafia checks. Larger and more visible projects therefore carry a higher risk of detection. Faced with this constraint, colluding local governments appear to adjust their behaviour accordingly. Rather than pursuing large and closely monitored projects, they systematically avoid them (Figure 2).
Figure 2: Number of EU projects above €150,000 in dissolved vs non-dissolved local governments
Note: For more information, see the authors’ recent study in the Journal of Economic Behavior & Organization.
This pattern is particularly evident for projects initiated during the term of colluding administrations, indicating that the shift is not accidental but the result of deliberate choices. At the same time, there is no comparable reduction in smaller projects that fall below the regulatory threshold.
Anti-mafia regulations are effective – but collusion does not disappear
Taken together, this evidence points to the fact that anti-corruption measures by the Italian state are working: the lower uptake of EU funds by colluding local governments is not the result of administrative weakness, but of strategic avoidance. Colluding actors do not fail to access funds, but they must opt out of the types of projects they prefer as these projects would expose them to greater scrutiny while simultaneously doing greater harm to the community.
By steering away from larger and more ambitious investments, colluding local governments do indeed distort the allocation of EU funds, with tangible consequences for local communities.
But this change in behaviour means that, although municipalities experiencing collusion still display lower local economic growth, they avoid the more pernicious effects of rigged larger projects that fill the pockets of criminals. Yet, they also miss out on some larger projects, which may also limit the long-term development potential of their territories.
These findings carry important implications for the future of EU Cohesion Policy. On the one hand, anti-mafia regulations appear to be effective. They discourage colluding local governments from accessing large EU funded projects, limiting the risk that public resources are directly captured. On the other hand, collusion does not disappear. It adapts. Rather than capturing large projects, colluding actors shift towards smaller and less visible opportunities.
Ultimately, our research underscores a bittersweet truth about governance: fighting corruption can successfully deter crime, but it cannot, by itself, conjure integrity. The Italian state’s oversight has effectively forced the hand of organised criminality, pushing its activity further into the margins.
Yet, as long as the underlying collusion persists, the EU’s investment will continue to be diverted into the shallow waters of the small-scale and the mundane, leaving the deep-seated disparities across parts of the continent’s periphery largely untouched.
For more information, see the authors’ recent study in the Journal of Economic Behavior & Organization.
Note: This article gives the views of the authors, not the position of LSE European Politics or the London School of Economics.
Image credit: rarrarorro provided by Shutterstock.
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