IMF Working Papers

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

By Dmitry Plotnikov

January 16, 2020

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Dmitry Plotnikov. Crime and Output: Theory and Application to the Northern Triangle of Central America, (USA: International Monetary Fund, 2020) accessed November 8, 2024

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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.

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

Publication Details

  • Pages:

    25

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2020/002

  • Stock No:

    WPIEA2020002

  • ISBN:

    9781513519272

  • ISSN:

    1018-5941