Money Laundering in the Real Estate sector:

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1 Money Laundering in the Real Estate sector: evidence from the Italian market at a provincial level Riccardo Novaro Master of Arts in Economics, Collegio Carlo Alberto June 15, / 18

2 Talk overview Introductory remarks Theoretical characteristics Variables issues Implementation of the model and main results Conclusions 2 / 18

3 Facts about Real Estate and Unobservable Economy in Italy Reasons behind this choice: relevance of the real estate sector dimension of criminal/shadow economy and money laundering (see Ardizzi et al., 2014) 3 / 18

4 Presence of Crime in the Real Estate literature Micro literature: Diaz-Serrano (2005) Kiel and Zabel (2008) Stadelmann (2010) Kiefer (2011) Macro literature: Potepan (1996) Scafidi et al. (1998) Schneider (2004) Yan et al. (2007) 4 / 18

5 The Model Errors peculiarities: time autocorrelation (Prais-Winsten) heteroscedasticity (PCSE) spatial correlation (PCSE) 5 / 18

6 Dataset construction Hypotheses about the determinants of real estate market prices: per capita wages: pil pc population distribution: pop 25 wealth distribution: u rents (and their determinants): aff cost of capital: INT market efficiency: IMI supply regulation: stock pop hedonic aspects: verde pc, tras pc and rdiff crimes connected to ML: ENTERPRISE and POWER probability of being prosecuted for ML: sos pop tax evasion: evas comm and evas impr 6 / 18

7 Complete Regression Pimm it = α 0 + α 1 pil pc it + α 2 pop 25 it + α 3 u it + + α 4 aff it + α 5 INT it + α 6 IMI it + α 7 stock pop it + + α 8 verde pc it + α 9 tras pc it + α 10 rdiff it + + α 11 ENTERPRISE it + α 12 POWER it + α 13 sos pop it + + α 14 evas comm it + α 15 evas impr it + ε it 7 / 18

8 Starting Regressions regressor Model 1 Model 2 Model 4 pil pc ** pop *** *** *** u aff *** *** *** INT IMI ** ** ** stock pop *** *** *** verde pc *** *** tras pc *** ** rdiff ** ENTERPRISE *** POWER sos pop evas comm ** evas impr constant *** *** *** 8 / 18

9 Baseline model - Coefficients regressor coefficient z value pil pc (0.83) pop (4.30) *** aff (35.64) *** IMI (-2.95) *** stock pop (5.07) *** verde pc (4.76) *** tras pc (2.60) *** rdiff (1.96) ** ENTERPRISE (3.97) *** POWER (0.80) evas comm (-2.18) ** evas impr (-0.49) constant (-4.31) *** 9 / 18

10 Baseline model - Percentage contribution of the variables Italy north centre south pimm Positive contribution pop aff stock pop ENTERPRISE pil pc rdiff tras pc POWER verde pc Negative contribution constant IMI evas comm evas impr / 18

11 Disaggregated model - Coefficients Model 5 (disaggregated) Model 5 (baseline) regressor coefficient z value pil pc (1.22) pop (4.76) *** aff (37.96) *** IMI (-2.80) *** stock pop (5.50) *** verde pc (5.09) *** tras pc (2.58) *** rdiff (2.01) ** ENT a (2.67) *** ENT b (3.78) *** POWER (0.56) evas comm (-2.54) ** evas impr (-1.58) constant (-4.80) *** regressor coefficient z value pil pc (0.83) pop (4.30) *** aff (35.64) *** IMI (-2.95) *** stock pop (5.07) *** verde pc (4.76) *** tras pc (2.60) *** rdiff (1.96) ** ENT (3.97) *** POWER (0.80) evas comm (-2.18) ** evas impr (-0.49) constant (-4.31) *** 11 / 18

12 Disaggregated model - Percentage contribution of the variables Italy north centre south pimm Positive contribution pop aff stock pop ENTERPRISE b pil pc ENTERPRISE a rdiff tras pc verde pc POWER Negative contribution constant IMI evas comm evas impr / 18

13 Simulations - northern Italy province quotation theoretical value difference difference % Rimini % Genova % Savona % Bologna % Imperia % Ravenna % Torino % Milano % Parma % Padova % Rovigo % Cremona % Cuneo % Udine % Treviso % Mantova % Pordenone % Lecco % Biella % Sondrio % 13 / 18

14 Simulations - central Italy province quotation theoretical value difference difference % Lucca % Pistoia % Massa % Pescara % Firenze % Livorno % Roma % L Aquila % Teramo % Latina % Pisa % Viterbo % Pesaro % Terni % Ancona % Arezzo % Chieti % Macerata % Frosinone % Siena % 14 / 18

15 Simulations - southern Italy province quotation theoretical value difference difference % Napoli % Caserta % Catania % Palermo % Trapani % Reggio Calabria % Brindisi % Salerno % Catanzaro % Siracusa % Lecce % Messina % Taranto % Ragusa % Agrigento % Cosenza % Benevento % Avellino % Campobasso % 15 / 18

16 Conclusions relevance of ENTERPRISE macro-areas comparisons effects on real economy effects on equity 16 / 18

17 Limits number of analyzed provinces aggregation data procedures county town variables space and time restrictions in ML connection between crimes and related profits weight of crimes proportion between observed/occurred crimes 17 / 18

18 Further improvements quantification of the capitals laundered through real estate extension of the time series up to recent years application of the procedure to other goods 18 / 18

Regione Provincia Distretto Abruzzo Chieti DISTRETTO 009 Abruzzo Chieti DISTRETTO 010 Abruzzo Chieti DISTRETTO 011 Abruzzo Chieti DISTRETTO 015

Regione Provincia Distretto Abruzzo Chieti DISTRETTO 009 Abruzzo Chieti DISTRETTO 010 Abruzzo Chieti DISTRETTO 011 Abruzzo Chieti DISTRETTO 015 Regione Provincia Distretto Abruzzo Chieti DISTRETTO 009 Abruzzo Chieti DISTRETTO 010 Abruzzo Chieti DISTRETTO 011 Abruzzo Chieti DISTRETTO 015 Chieti Conteggio 4 Abruzzo L'Aquila DISTRETTO 001 Abruzzo

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