Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212643 
Year of Publication: 
2008
Series/Report no.: 
BOFIT Discussion Papers No. 30/2008
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This paper explores the optimal law enforcement strategy of a Leviathan government in the presence of organized crime. The government is considered too weak to prevent an upsurge in crime, so it allows the mafia to generate a positive payoff by extracting rents in the shadow economy. From a strategic standpoint, the government, if it has the possibility to monitor shadow production and fine offenders, may not want to shut down illegal production or kick out the mafia, but instead can use its policing activity to capture additional revenue through fines on illegal firm activities and an increased tax base when mafia-harassed firms return to the legal sector. The option of escaping into the shadow economy can benefit some firms, even when this utility is diluted by the presence of a mafia. Monitoring hurts both legal and illegal firms, while the government benefits.
Subjects: 
organized crime
shadow economy
taxation
JEL: 
H26
H41
K42
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-951-5
Document Type: 
Working Paper

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