Uncovering Illegal and Underground Economies: The Case of Mafia Extortion Racketeering

Lavinia Piemontese ()
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Lavinia Piemontese: Univ Lyon, ENS de Lyon, GATE UMR 5824, F-69342 Lyon, France

No 2025, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: This paper proposes a new approach for quantifying the economic cost of hidden economies. I specifically apply the method to the case of mafia racketeering in Northern Italy, and in so doing, provide the first explicit estimate of the economic cost of mafia spread in this area. I show both theoretically and empirically that acts of extortion imposed on certain firms are linked to resource misallocation. I quantify the share of output that the mafia extorts from firms, which ranges between 0.5 and 5 percent of firm-level output for the taxed firms. I then consider what these estimates imply and find that between 2000 and 2012, the Northern Italian economy suffered an aggregate loss of approximately 2.5 billion Euros. Quite remarkably, only one-fourth of this cost consists of the aggregate transfer to the mafia. The remaining three-fourths corresponds to the contraction of production due to misallocation.

Keywords: Organized crime; Extortion Racketeering; Resource Misallocation; Welfare Loss; within-industry OP covariance (search for similar items in EconPapers)
JEL-codes: C5 D61 K42 O17 O4 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-eur and nep-iue
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Citations: View citations in EconPapers (3)

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