Three essays on applied microeconomics

This thesis studies the impacts of government policies and the role of institutions in shaping governments' actions. In the first essay, I evaluate the consequences of independent auditing for the financial outcomes of municipal governments in Italy. In 2011, Italy switched from allowing mayors to appoint municipal auditors to a system of random assignment, to strengthen oversight and ensure the financial soundness of municipal budgets. My identification exploits the reform's staggered introduction across municipalities in a generalized difference-in-differences setting. I find evidence that the reform significantly increased the financial health of municipalities. The effects are stronger in places where monitoring was more likely to be lax or corrupt in the pre-reform period, and that randomly receive a less connected auditor. Overall, results emphasize the benefits of independence in making monitoring effective and enforcing the central government's austerity policies. In the second essay, I study the effects of fiscal stimulus transfers, which are one of the key policy tools for governments to stimulate consumption in times of economic downturns. I investigate the electoral response to a large tax credit introduced in Italy in 2014, immediately before an election. The official scope of the transfer was to stimulate consumption, yet it was offered only to payroll, middle-income individuals. Leveraging the quasi-exogenous variation at the municipal level in the share of beneficiaries, I apply a difference-in-differences design and show that the program yields large and persistent returns for the incumbent party. This suggests that electoral incentives might have affected the design of the policy. In the third essay, I causally estimate the effects of pro-cyclical unemployment-assistance reductions on job search behavior and re-employment outcomes using reform-induced changes in UA durations for older workers in Spain. Benefit reductions are effective in bringing workers back to work and reduce non-employment duration, but also induce displacements out of the labor force and strong substitution patterns towards less generous UA programs, highlighting the social insurance role of long-term benefits during economic downturns. Despite the sharp drop in non-employment duration, I also document a significant decrease in re-employment wages, consistent with a reduction in workers' reservation wages and limited duration dependence