DRUG TRAFFICKING, MONEY LAUNDERING AND THE BUSINESS CYCLE: DOES SECULAR STAGNATION INCLUDE CRIME?

Raffaella Barone, Domenico Delle Side and Donato Masciandaro ()

No 1747, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: The aim of the paper is to analyze theoretically and empirically the impact the macroeconomic cycle has on the accumulation of capital by organized crime, using estimates for the global drug market. So far the economic literature has neglected the relationships existing between illegal markets, money laundering, and the business cycle. We propose a dynamic model where the business cycle influences the criminal economy via two different channels. On the one side, illegal markets grow at variable rates, depending on the health of the legal economy. Secondly, a pass-through effect can exist, since the business cycle affects the legal markets which criminal operators use to launder their revenues. Furthermore, we analyze the consequences of a “saturation effect” limiting maximum accumulation of illegal capital. We find that overall illegal capital is affected by the business cycle through a capital multiplier; in addition to this, the dynamics of interest rates in financial markets can influence such multiplier.

Pages: 20 pages
Date: 2017
New Economics Papers: this item is included in nep-hea and nep-mac
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Drug trafficking, money laundering and the business cycle: Does secular stagnation include crime? (2018)
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