Federico Cingano, Paolo Pinotti, 17 August 2009

Rent-seeking by politicians and firms likely distorts the allocation of public resources. This column shows that, in Italy, when politicians appointed with the majority coalition are directly involved in the economic activity of private firms, those firms’ profits increase by 5% on average. The increase can be as high 20% in markets highly dependent on public demand, implying a significant welfare loss.

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