Crime and Output: Theory and Application to the Northern Triangle of Central America

Author/Editor:

Dmitry Plotnikov

Publication Date:

January 16, 2020

Electronic Access:

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Summary:

This paper presents a structural model of crime and output. Individuals make an occupational choice between criminal and legal activities. The return to becoming a criminal is endogenously determined in a general equilibrium together with the level of crime and economic activity. I calibrate the model to the Northern Triangle countries and conduct several policy experiments. I find that for a country like Honduras crime reduces GDP by about 3 percent through its negative effect on employment indirectly, in addition to direct costs of crime associated with material losses, which are in line with literature estimates. Also, the model generates a non-linear effect of crime on output and vice versa. On average I find that a one percent increase in output per capita implies about ½ percent decline in crime, while a decrease of about 5 percent in crime leads to about one percent increase in output per capita. These positive effects are larger if the initial level of crime is larger.

Series:

Working Paper No. 20/2

Subject:

English

Publication Date:

January 16, 2020

ISBN/ISSN:

9781513519272/1018-5941

Stock No:

WPIEA2020002

Format:

Paper

Pages:

25

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