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

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.

When Crime Tears Communities Apart: Social Capital and Organised Crime

“…Lastly, this paper is in line with the emerging literature exploring the causes behind the organised crime expansion (Varese, 2011;Piemontese, 2020;Dipoppa, 2021) and studying organised crime from a historical perspective (Bandiera, 2003;Buonanno, Durante, et al, 2015;Dimico et al, 2017;Acemoglu et al, 2020). Our findings suggest that transplanted criminal organisa- 2 Historical background: organised crime expansion in the Centre-…”