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The Shadow Economy and Banks’ Lending Technology

Salvatore Capasso, Stefano Monferrà and Gabriele Sampagnaro
Additional contact information
Stefano Monferrà: Università di Napoli “Parthenope”.
Gabriele Sampagnaro: Università di Napoli “Parthenope”.

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: Is there a relationship between bank monitoring models and the level of shadow economy? This paper develops a model of optimal lending technology to study the relationship between local underground economic activity and banks’ lending choices. In turn, as the aggregate level of informality and tax evasion increase, it becomes more profitable for banks to screen and supervise borrowers using more costly in-depth monitoring technologies. A large dataset of regional Italian data confirms these conjectures.

Keywords: Shadow economy; lending technology; monitoring (search for similar items in EconPapers)
JEL-codes: G21 H26 (search for similar items in EconPapers)
Date: 2015-12-16
New Economics Papers: this item is included in nep-ban and nep-iue
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:422

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