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

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Author Info

  • Joao M. De Mello

    (PUC-Rio)

  • Eduardo Zilberman

    (New York University)

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.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 ()
Pages: 52

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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:52

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Related research

Keywords: crime; economic behavior; savings;

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References

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  1. John Donohue & Steven Levitt, 2000. "The Impact of Legalized Abortion on Crime," NBER Working Papers 8004, National Bureau of Economic Research, Inc.
  2. Richard B. Freeman, 1996. "Why Do So Many Young American Men Commit Crimes and What Might We Do about It?," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 25-42, Winter.
  3. Lance Lochner, 2004. "Education, Work, and Crime: A Human Capital Approach," NBER Working Papers 10478, National Bureau of Economic Research, Inc.
  4. Ana Carla A. Costa & João M. P. De Mello, 2008. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans," NBER Chapters, in: Financial Markets Volatility and Performance in Emerging Markets, pages 155-184 National Bureau of Economic Research, Inc.
  5. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
  6. Jeffrey A. Miron & Jeffrey Zwiebel, 1995. "The Economic Case against Drug Prohibition," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 175-192, Fall.
  7. Demombynes, Gabriel & Ozler, Berk, 2005. "Crime and local inequality in South Africa," Journal of Development Economics, Elsevier, vol. 76(2), pages 265-292, April.
  8. Ciro Biderman & João Manoel Pinho de Mello & Alexandre A Schneider, 2006. "Dry law and homicides: evidence from the São Paulo metropolitan area," Textos para discussão 518, Department of Economics PUC-Rio (Brazil), revised Oct 2008.
  9. Conley, T. G., 1999. "GMM estimation with cross sectional dependence," Journal of Econometrics, Elsevier, vol. 92(1), pages 1-45, September.
  10. Loayza, N. & Schmidt, K. & Serven, L., 1999. "What Drives Private Saving Across the World?," Papers 47, Cambridge - Risk, Information & Quantity Signals.
  11. Kenneth Burdett & Ricardo Lagos & Randall Wright, 2003. "Crime, Inequality, and Unemployment," American Economic Review, American Economic Association, vol. 93(5), pages 1764-1777, December.
  12. Ana Carla A. Costa & João M. P. de Mello, 2006. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazil Payroll Loans," Working Papers Series 102, Central Bank of Brazil, Research Department.
  13. Gary S. Becker & Yona Rubinstein, 2011. "Fear and the Response to Terrorism: An Economic Analysis," CEP Discussion Papers dp1079, Centre for Economic Performance, LSE.
  14. Besley, Timothy, 1995. "Property Rights and Investment Incentives: Theory and Evidence from Ghana," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 903-37, October.
  15. Paolo Buonanno, 2003. "The Socioeconomic Determinants of Crime. A Review of the Literature," Working Papers 63, University of Milano-Bicocca, Department of Economics, revised Nov 2003.
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Cited by:
  1. Claudio Detotto & Pulina Manuela, 2010. "Testing the effects of crime on the Italian economy," Economics Bulletin, AccessEcon, vol. 30(3), pages 2063-2074.
  2. Ciro Biderman & João Manoel Pinho de Mello & Alexandre A Schneider, 2006. "Dry law and homicides: evidence from the São Paulo metropolitan area," Textos para discussão 518, Department of Economics PUC-Rio (Brazil), revised Oct 2008.
  3. Singh, Prakarsh, 2011. "Impact of terrorism on investment decisions of farmers: evidence from the Punjab insurgency," MPRA Paper 33328, University Library of Munich, Germany.
  4. Daniel Mejía & Pascual Restrepo, 2010. "Crime and Conspicuous Consumption," DOCUMENTOS CEDE 007716, UNIVERSIDAD DE LOS ANDES-CEDE.

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