Essays in applied political economy

This thesis consists in two essays that belong to the field of Political Economy with an emphasis on applied microeconometrics methodologies. In the first essay I investigate the effects of municipal party turnover in Italy on the performance of Local Public Enterprises (hereinafter, LPEs), defined as firms whose shares are owned by Italian municipalities. The link between the political sphere and the management of LPEs is evident, as shareholding gives municipalities the power to appoint directors, approve financial statements, and set the amount of resources to be transferred to these firms. Nevertheless, the impact of a shift in the municipal government on the performance of these companies has not been analysed in the literature. The issue is particularly relevant in the Italian context, where the phenomenon of LPEs has been shown to be endemic and these f irms have often been used for rent-seeking purposes. The causal effect of municipal turnover on the various facets of performance is not easily identified, however, as reverse causality is likely to characterise the relation between these two variables. To solve this issue we resort to a sharp Regression Discontinuity Design that exploits the municipality’s deterministic assignment to treatment, depending on the incumbent party’s margin of victory. The fact that municipal party turnover is as good as randomly assigned when electoral races are particularly contested allows us estimate its causal effects on performance. My main result shows that turnover has a disruptive effect on investments, productivity growth, and financial stability. Interestingly, the drop in investment occurs mainly in the first part of the term, when the LPE’s investment plans are more likely to be revised by the newly-elected party. I link my findings to three mechanisms that are likely to be triggered by party turnover. First, I claim that the incumbent may use investment in LPEs as a tool to foster re-election, especially when electoral outcomes are particularly uncertain. Second, I find causal evidence that elected challengers are more likely to appoint new, potentially inexperienced, directors in these firms’ boards. Finally, I show that the winning party cuts transfers to Local Public Enterprises when turnover takes place. This is coherent with the view that the challenger wants to signal competence to voters, especially when electoral margins are tight. In the second essay I study the links between corruption, as measured by the Corruption Perception Index and the individual number of chronic diseases of a sample of Europeans aged above 50. An extensive literature investigates the effects of country-level corruption on aggregate mortality rates in developing countries, yet no contribution specifically focuses on individual morbidity indicators, or assesses the effects of corruption on health outcomes in relatively high-income countries such as the ones belonging to the European Union. I find empirical evidence that individuals living in relatively more corrupted countries are affected by alarger number of chronic diseases. I test the robustness of these results with the inclusion of a wide range of individual socio-demographic and health behaviour characteristics, and with the use of pooled-OLS and fixed-effects empirical methodologies. Moreover, results are not qualitatively affected by the use of different measures of corruption or an alternative morbidity outcome, i.e. the fact that the respondent is affected by at least one chronic disease. A heterogeneity analysis based on country factors shows that corruption negatively affects health outcomes especially of respondents living in countries characterised by relatively low income and healthcare expenditure. As far as individual factors are concerned corruption is shown to affect health outcomes mainly of females and respondents with poor socio-economic status. Finally, I find evidence that corruption significantly increases the probability of being affected by cardiovascular diseases and ulcer.