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Crime and Output: Theory and Application to the Northern Triangle of Central America
Author:
Dmitry Plotnikov
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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 002
Language:
English
Publication Date:
16 Jan 2020
DOI:
https://doi.org/10.5089/9781513519272.001
ISBN:
9781513519272
ISSN:
1018-5941
Pages:
25
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
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2020: Issue 002