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Police spending and economic stabilization in a monetary economy with crime and differential human capital

King Yoong Lim () and Pengfei Jia ()

NBS Discussion Papers in Economics from Economics, Nottingham Business School, Nottingham Trent University

Abstract: This paper presents a dynamic model with crime, differential human capital, credit market imperfection, and police spending to examine the role of the latter in stabilizing shock arisen from formal educational quality uncertainty. Based on a stylized parameterization, we find formal and illegal human capital accumulation to share a common cyclical property. There is a case for the use of a rule-based approach to police spending as it smoothens out the fluctuations arisen from formal educational uncertainty, while contributing to a decoupling of the two types of human capital. This nonetheless comes with a cost of greater propagation of the financial accelerator effect due to credit market imperfection, and therefore necessitates the use of a supplementary monetary smoothing regime to negate these negative effects.

Keywords: Crime; Credit Imperfection; Financial Accelerator; Human Capital Investment; Police Spending (search for similar items in EconPapers)
JEL-codes: H39 H50 K42 E44 E61 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-dge and nep-mac
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http://www.ntu.ac.uk/__data/assets/pdf_file/0033/7 ... ic-stabilization.pdf First version, 2019 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:nbs:wpaper:2019/02

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