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

  • De Mello Joao M



  • Zilberman Eduardo


    (New York University)

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

Volume (Year): 8 (2008)
Issue (Month): 1 (December)
Pages: 1-28

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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:52
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  1. Edward L. Glaeser & Bruce Sacerdote, 1996. "Why Is There More Crime in Cities?," NBER Working Papers 5430, National Bureau of Economic Research, Inc.
  2. Christiano A. Coelho & João Manoel Pinho de Mello & Leonardo Rezende, 2007. "Are Public Banks pro-Competitive? Evidence from Concentrated Local Markets in Brazil," Textos para discussão 551, Department of Economics PUC-Rio (Brazil), revised Sep 2007.
  3. Alberto Abadie & Sofia Dermisi, 2006. "Is Terrorism Eroding Agglomeration Economies in Central Business Districts? Lessons from the Office Real Estate Market in Downtown Chicago," NBER Working Papers 12678, National Bureau of Economic Research, Inc.
  4. Rafael Di Tella & Ernesto Schargrodsky, 2004. "Do Police Reduce Crime? Estimates Using the Allocation of Police Forces After a Terrorist Attack," American Economic Review, American Economic Association, vol. 94(1), pages 115-133, March.
  5. Demombynes, Gabriel & Ozler, Berk, 2005. "Crime and local inequality in South Africa," Journal of Development Economics, Elsevier, vol. 76(2), pages 265-292, April.
  6. 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.
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  8. 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.
  9. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
  10. Lance Lochner, 2004. "Education, Work, and Crime: A Human Capital Approach," NBER Working Papers 10478, National Bureau of Economic Research, Inc.
  11. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  12. Richard B. Freeman & William M. Rodgers III, 1999. "Area Economic Conditions and the Labor Market Outcomes of Young Men in the 1990s Expansion," NBER Working Papers 7073, National Bureau of Economic Research, Inc.
  13. S. Brock Blomberg & Gregory D. Hess, 2006. "How Much Does Violence Tax Trade?," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 599-612, November.
  14. Deininger, Klaus, 2003. "Causes and consequences of civil strife - micro-level evidence from Uganda," Policy Research Working Paper Series 3045, The World Bank.
  15. Rony Pshisva & Gustavo A. Suárez F., 2006. "Captive Markets: the Impact of Kidnappings on Corporate Investment in Colombia," COYUNTURA ECONÓMICA, FEDESARROLLO, June.
  16. Rony Pshisva & Gustavo A. Suarez, 2006. "'Captive markets': the impact of kidnappings on corporate investment in Colombia," Finance and Economics Discussion Series 2006-18, Board of Governors of the Federal Reserve System (U.S.).
  17. Lusardi, Annamaria, 1998. "On the Importance of the Precautionary Saving Motive," American Economic Review, American Economic Association, vol. 88(2), pages 449-53, May.
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