Drug Trafficking, Money Laundering and the Business Cycle: Does Secular Stagnation Include Crime?

18 Pages Posted: 3 Apr 2018

See all articles by Raffaella Barone

Raffaella Barone

University of Salento - Department of Law

Domenico Delle Side

University of Salento

Donato Masciandaro

Bocconi University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2018

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. Second, 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.

Suggested Citation

Barone, Raffaella and Delle Side, Domenico and Masciandaro, Donato, Drug Trafficking, Money Laundering and the Business Cycle: Does Secular Stagnation Include Crime? (May 2018). Metroeconomica, Vol. 69, Issue 2, pp. 409-426, 2018, Available at SSRN: https://ssrn.com/abstract=3154831 or http://dx.doi.org/10.1111/meca.12193

Raffaella Barone (Contact Author)

University of Salento - Department of Law ( email )

Campus Universitario - Via Li Tufi
LECCE, LE 73020
Italy

Domenico Delle Side

University of Salento ( email )

via Taranto 35
Piazza Tancredi, N.7
Lecce, Lecce 73100
Italy

Donato Masciandaro

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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