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

Dmitry Plotnikov

No 2020/002, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; crime rate; judicial system; Crime; Employment; Growth; crime level; representative firm; crime uncertainty; crime cost; cost calculation; insight crime; Labor markets; Public expenditure review; Wages; Central America (search for similar items in EconPapers)
Pages: 25
Date: 2020-01-16
New Economics Papers: this item is included in nep-dge
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Citations: View citations in EconPapers (2)

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