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

IMF Working Papers, January 16, 2020

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Presents a structural model of crime and output in which individuals choose between criminal and legal occupations.
The return to becoming a criminal is endogenously determined in a general equilibrium together with the level of crime and economic activity.
The model is calibrated to the Northern Triangle countries and used to conduct several policy experiments.

Crime reduces GDP in multiple ways:
- 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.
The model generates non-linear effects between crime and output:
- On average, a one percent increase in output per capita implies about ½ percent decline in crime.
- 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.

Subject: Crime, Employment, Expenditure, Labor, Labor markets, Public expenditure review, Wages
Keywords: Central America, cost calculation, Crime, crime cost, crime level, crime rate, crime uncertainty, Employment, Growth, insight crime, judicial system, Labor markets, Public expenditure review, representative firm, Wages, WP