Crime and Output: Theory and Application to the Northern Triangle of Central America
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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. 2020/002
Subject:
Crime Employment Expenditure Labor Labor markets Public expenditure review Wages
English
Publication Date:
January 16, 2020
ISBN/ISSN:
9781513519272/1018-5941
Stock No:
WPIEA2020002
Pages:
25
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