The macroeconomic impact of organised crime: A post-Keynesian analysis

The paper proposes an extended post-Keynesian model, where effective demand drives income levels and growth rates, to explain how organised crime affects the economy. In our set-up, some criminal activities, such as extortion, the criminal trade and corruption, reduce demand by draining resources from the legal sector; whereas others, such as money laundering, increase demand. The model determines under which conditions each effect prevails. Finally, we perform a simulation exercise that considers Italy, showing that the size of the criminal trade is so excessively large that organised crime impacts negatively on the Italian economy. In this context, we also provide several policy recommendations.