Does Crime Affect Economic Decisions? An Empirical Investigation of Savings in a High-Crime Environment

Joao De Mello and Eduardo Zilberman
Authors registered in the RePEc Author Service: John List

The B.E. Journal of Economic Analysis & Policy, 2008, vol. 8, issue 1, 1-28

Abstract: While most economic studies of crime have examined the determinants of criminal activity, this paper asks the reverse question: how does crime affect economic behavior? We study the relationship between crime and savings in the cities of São Paulo, a wealthy but crime-ridden state in Brazil. Our empirical results suggest that property crime is associated with an increase in savings. However, we do not observe a relationship between violent crime and savings, findings that are consistent with the theoretical explanation as to why crime induces thriftiness. These results are robust to an extensive sensitivity analysis that includes: 1) the inclusion of a large set of demographic covariates when examining cross-city variation; 2) accounting for city and period fixed effects when studying cross-city variation over time; 3) accounting for sample selection; and 4) splitting the sample by population size and income. We provide evidence that the association is not driven by reallocation towards bank deposits in general, which are safer assets in high-crime environments. Finally, we find a similar impact using household consumption and savings data.

Date: 2008
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DOI: 10.2202/1935-1682.1878

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