Do loans harm? The Effect of IMF Programs on Inequality

IMF programs consist of granting loans, and of conditionality that countries have to follow in order to qualify for them. The paper uses a pooled time-series cross section analysis, covering 98 countries over the period 1970-2000 in order to find out which effect IMF programs have on the personal and wage income distribution of the grant receiving country. Similar to findings on growth (Dreher 2006), IMF programs have also a negative impact on income. This is due mainly to conditionality, whereas the amount of loans granted does not seem to harm.developing countries, inequality, pooled regression, IMF programs, loans and conditionality

Attempts to Dodge Drowning in Data. Rule- and Risk-Based Anti Money Laundering Policies Compared

Both in the US and in Europe anti money laundering policy switched from a rule- to a risk-based reporting system in order to avoid over-reporting by the private sector. However, reporting increased in most countries, while the quality of information decreased. Governments drowned in data because private agents feared sanctions for not reporting. This ``crying wolf'' problem. (Takats 2007) did not happen in the Netherlands, where the number of reports diminished but information quality improved. Reasons for this can be found in differences in legal institutions and legal culture, notably the contrast between US adversarial legalism and Dutch cooperative informalism. The established legal systems also provide for resistance to change. Thus lowering sanctions in order to reduce over-reporting may not be a realistic option in a legal system which traditionally uses deterrence by fierce criminal and private legal sanctions. Furthermore, a risk-based approach may not be sustainable in the long run, as litigation may eventually replace a risk-based approach again by a rule-based one, now with precise rules set by the courts.money laundering, anti money laundering policy, risk based regulation, rules, standards, comparison of legal systems, tort law

Revaluating the Tanzi-Model to Estimate the Underground Economy

Since the early 1980s, the interest in the nature and size of the non-measured economy (both the informal and the illegal one) was born among researchers in the US. Since then, several models to estimate the shadow and/or the underground economy appeared in the literature, each with its own theoretical pros and cons. In this paper we show that it is possible to overcome earlier expressed criticism of the Tanzi-model (1983). Its lack of a base year without any underground economy can be overcome, by using the natural experiment of the introduction of the Euro. However, this paper also comes up with new criticism. It shows that the crucial relationship of the Tanzi-model between taxes and the demand for cash money is not time robust, hence the model is not useful for estimating the underground economy nowadays. We believe that the change in financial conditions could partially explain the decline in the relevance of taxes as a means to evaluate the underground economy. We build a revised Tanzi model and try to find variables apart from tax evasion incentives in order to explain the underground economy.Underground Economy Estimation, Shadow Economy, Tax Evasion

Will Internationalization Lead to a Convergence of National Economic Policies?

Series: Department of Economics Working Paper Serie

A Comparison of the Construction Industry in Europe, Characteristics, Governance, Performance and Future Perspectives

Series: Department of Economics Working Paper Serie

Gravity Models of Trade-based Money Laundering

Several attempts have been made in the economics literature to measure money laundering. However, the adequacy of these models is difficult to assess, as money laundering takes place secretly and, hence, goes unobserved. An exception is trade- based money laundering (TBML), a special form of trade abuse that has been discovered only recently. TBML refers to criminal proceeds that are transferred around the world using fake invoices that under- or overvalue imports and exports. This article is a first attempt to test well-known prototype models proposed by Walker and Unger to predict illicit money laundering flows and to apply traditional gravity models borrowed from international trade theory. To do so, we use a dataset of Zdanowicz of TBML flows from the US to 199 countries. Our test rejects the specifications of the Walker and Unger prototype models, at least for TBML. The traditional gravity model that we present here can indeed explain TBML flows worldwide in a plausible manner. An important determinant is licit trade, the mass in which TBML is hidden. Furthermore, our results suggest that criminals use TBML in order to escape the stricter anti money laundering regulations of financial markets.Money laundering, international trade, gravity model, Walker model.

Bilateral responsive regulation and international tax competition: An agent‐based simulation

Country‐by‐Country Reporting and Automatic Exchange of Information have recently been implemented in European Union (EU) countries. These international tax reforms increase tax compliance in the short term. In the long run, however, taxpayers will continue looking abroad to avoid taxation and, countries, looking for additional revenues, will provide opportunities. As a result, tax competition intensifies and the initial increase in compliance could reverse. To avoid international tax reforms being counteracted by tax competition, this paper suggests bilateral responsive regulation to maximize compliance. This implies that countries would use different tax policy instruments toward other countries, including tax and secrecy havens. Our agent‐based simulation finds that a differentiated policy response could increase tax compliance by 6.54 percent, which translates into an annual increase of €105 billion in EU tax revenues on income, profits, and capital gains. Corporate income tax revenues in France, Spain, and the UK alone would already account for €35 billion

Shedding light inside the black box of implementation: Tax crimes as a predicate crime for money laundering

Even perfect transposition of EU Directives does not necessarily translate into homogeneous rules or application of rules across the European Union. Europeanization literature focused on the formal transposition of EU Directives. Newer studies suggest looking into the black box of how this translates into law in action. The 4th Anti-Money Laundering Directive incorporated taxes as a predicate crime for money laundering. We analyze how and why this Directive has been implemented so differently across EU countries both in the books and in action through a novel dataset. We find that country characteristics can explain formal transposition patterns and influence the domestic adaptation of regulation as well as how practitioners, the second front line of implementation, use these rules in action. We find that corruption, government effectiveness, regulatory quality, tax morale, and tax administrative capacity are important factors to explain lingering differences in the books and in action among EU Member States

The effect of anti-money laundering policies: an empirical network analysis

Aim: There is a growing literature analyzing money laundering and the policies to fight it, but the overall effectiveness of anti-money laundering policies is still unclear. This paper investigates whether anti-money laundering policies affect the behavior of money launderers and their networks. Method: With an algorithm to match clusters over time, we build a unique dataset of multi-mode, undirected, binary, dynamic networks of natural and legal persons. The data includes ownership and employment relations and associated financial ties and is enriched with criminal records and police-related activities. The networks of money launderers, other criminals, and non-criminal individuals are analyzed and compared with temporal social network analysis techniques and panel data regressions on centrality measures, transitivity and assortativity indicators, and levels of constraint. Findings: We find that after the announcement of the fourth EU anti-money laundering directive in 2015, money laundering networks show a significant increase in the use of foreigners and corporate structures. At the individual level, money launderers become more dominant in criminal clusters (increased closeness centrality). This paper shows that (the announcement of) anti-money laundering policies can affect criminal networks and how such effects can be tested

Gebakken lucht – Identifying Illicit Financial Flows of Oil and Gas Corporations from Africa through the Netherlands

‘Gebakken lucht’ is a Dutch expression that literally means “baked air”, proverbially referring to something that appears like quite something, while it is in fact nothing. Oil and gas corporations that delve valuable resources in Africa often have offices in the Netherlands or similar countries with large amounts of money flowing through and little to no real activity. These money flows without underlying substance can be seen as ‘gebakken lucht’ and are classified as illicit financial flows by UNCTAD. This article shows how one could monitor these immense but hidden illicit financial flows which, when retrieved, would make Africa almost debt-free. We show how red flag indicators can reveal the risk of money laundering, tax evasion, or tax avoidance. We identify 61 different red flags and apply them to five oil and gas corporations(of which one is a ‘clean case’) active in Angola, Mozambique, Nigeria, and Egypt. These five corporations have their headquarters in Europe with 173 subsidiaries in the Netherlands. Their annual total revenue in Africa is 36.4 billion USD. We demonstrate how such an analysis works and draw preliminary conclusions about the validity of the red flags for monitoring illicit financial flows to reach sustainable development goals