3.13 Instituto de Economía

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Dynamics of crime and inequality
(2023) Aylwin Trischler, Alberto José; Janiak, Alexandre; Aguirre Rigo-Righi; Pontificia Universidad Católica de Chile. Instituto de Economía
In this work, we examine the causal relationship between crime and inequality and explore potential policy options to reduce inequality and crime. To achieve this, we propose a general equilibrium heterogeneous agent model for crime, with incomplete markets, as well as search and matching frictions to characterize the crime dynamics. In it, agents choose to behave as model citizens or engage in opportunistic crime. The model provides an endogenous wealth distribution that turns out to be crucial in all of the agents decisions. Crime can be seen as an outside option for agents in the face of poor lawful economic choices. As a result, increasing security increases income and wealth inequality. Rising income inequality generates an increase in the level of crime, up to the point that inequality is so high that a share of prospective criminals prefer a lower income in exchange of less risk. These findings put inequality as one of the main determinants of crime in a society. Additionally, we assess the impacts of four policy measures on crime and inequality: labor taxation, direct transfers, imprisonment sentence length, and imprisonment consumption level. We compute optimal policy schemes under different assumptions.