Exploring Flows to Tax Havens Through Means of a Gravity Model: Evidence from Italy

Abstract

We exploit a gravity model to study the main determinants of cross-border financial flows and to identify those flows that appear to be abnormally above the predicted value. Our data include all Italian cross-border bank transfers that took place between 2007 and 2010. We find that, other things being equal, financial flows to risky destinations are 36 per cent larger than in other countries. Using the residuals from our main econometric specification, we then construct an index of anomaly and find positive and statistically significant correlations between this and the rate of property and drugs-related crimes in the province of origin, and also between the index and other measures of foreign jurisdictions' riskiness and opacity of legislation.

Cleaning mafia cash: An empirical analysis of the money laundering behaviour of 2800 Italian criminals

“…Previous empirical studies have focused on several areas of interest in this research domain, such as the type of ML methods (see, e.g., Irwin et al, 2011;Matanky-Becker and Cockbain, 2021), the investment strategy of organised crime groups (see, e.g., Dugato et al, 2015;Kruisbergen et al, 2015;Riccardi, 2014), the extent of the involvement of professionals and financial facilitators (see, e.g., Cummings and Stepnowsky, 2010;Kramer et al, 2023;Malm and Bichler, 2013), and transnational illicit financial flows (see, e.g., Cassetta et al, 2014;Gara and De Franceschis, 2015). Key trends and patterns emerging from the existing literature are discussed below.…”