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The stabilization role of police spending in a neo‐Keynesian economy with credit market imperfections

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  • Pengfei Jia
  • King Yoong Lim

Abstract

Motivated by a seemingly persistent “twin‐high” phenomenon in Latin America, we present a novel theoretical framework that has linkages between three institutions (education, criminal justice, and credit) to study policy‐pertinent research questions with regards to whether police spending has the potential to serve as an unconventional policy tool for macroeconomic management. Based on a stylized parameterization, we find formal and illegal human capital to share common cyclical properties, which can be "decoupled" under a rule‐based regime to police spending. This nonetheless comes at a cost of a greater propagation of the credit friction‐induced financial accelerator effect.

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  • Pengfei Jia & King Yoong Lim, 2021. "The stabilization role of police spending in a neo‐Keynesian economy with credit market imperfections," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(1), pages 103-125, February.
    • Handle: RePEc:bla:scotjp:v:68:y:2021:i:1:p:103-125
    DOI: 10.1111/sjpe.12258
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    More about this item

    JEL classification:

    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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