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

Lavinia Piemontese
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Lavinia Piemontese: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique

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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)
Date: 2021-09-20
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02928546v2
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Citations: View citations in EconPapers (2)

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