Social Capital, Government Efficiency, and Incumbent Turnover: Evidence from Italian Municipalities

We study how social capital shapes the efficiency and turnover of local government, using original data on Italian municipalities. We measure local government performance with administrative indicators that capture two things: the output of essential public services, and the technical efficiency with which municipalities turn spending into those outputs. A natural concern is that social capital is itself shaped by the quality of local governance. To address this, we use an instrumental variable strategy, instrumenting a municipality's social capital with that of surrounding areas through a "leave-one-out" technique. We find that municipalities with higher social capital have local governments that are both more productive and more efficient, and this holds for mayors in both their first and their term-limited second term in office. At the same time, higher social capital is associated with a lower probability that the incumbent mayor is returned to office, and hence with greater political turnover. The results are robust to controlling for spatial interactions between neighboring municipalities and to using each social capital measure separately. Overall, the evidence indicates that social capital strengthens the everyday performance of local government while making elections more demanding for those who hold office.