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Inequality and Crime: Separating the Effects of Permanent and Transitory Income

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Abstract

Earlier studies on income inequality and crime have typically used total income or total earnings. However, it is quite likely that it is changes in permanent rather than in transitory income that affects crime rates. The purpose of this paper is therefore to disentangle the two effects by, first, estimating region-specific inequality in permanent and transitory income and, second, estimating crime equations with the two separate income components as explanatory variables. The results indicate that it is important to separate the two effects; while an increase in the inequality in permanent income yields a positive and significant effect on total crimes and three different property crimes, an increase in the inequality in transitory income has no significant effect on any type of crime. Using a traditional, aggregate, measure of income yields mainly insignificant effects on crime.

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File URL: http://uu.diva-portal.org/smash/get/diva2:665217/FULLTEXT01.pdf
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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2005:20.

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Length: 27 pages
Date of creation: 27 Jun 2005
Publication status: Forthcoming in Oxford Bulletin of Economics and Statistics.
Handle: RePEc:hhs:uunewp:2005_020
Contact details of provider: Postal:
Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden

Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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Keywords: Crime; Earnings dynamics; Inequality;

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Find related papers by JEL classification:
  • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
  • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
  • J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other
  • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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  1. Gabor Kezdi, 2005. "Robus Standard Error Estimation in Fixed-Effects Panel Models," Econometrics 0508018, EconWPA.
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  8. Demombynes, Gabriel & Ozler, Berk, 2005. "Crime and local inequality in South Africa," Journal of Development Economics, Elsevier, vol. 76(2), pages 265-292, April.
  9. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics,in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
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  11. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-375, April.
  12. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
  13. Edin, P.-A. & Fredriksson, P., 2000. "LINDA - Longitudinal INdividual DAta for Sweden," Papers 2000:19, Uppsala - Working Paper Series.
  14. Nilsson, Anna, 2004. "Income inequality and crime: The case of Sweden," Working Paper Series 2004:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  15. Milton Friedman & Simon Kuznets, 1954. "Income from Independent Professional Practice," NBER Books, National Bureau of Economic Research, Inc, number frie54-1, October.
  16. Lorenzo Cappellari, 2004. "The Dynamics and Inequality of Italian Men’s Earnings: Long-term Changes or Transitory Fluctuations?," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
  17. Nilsson, Anna, 2004. "Income Inequality and Crime: The Case of Sweden," Research Papers in Economics 2004:3, Stockholm University, Department of Economics.
  18. Edmark, Karin, 2003. "The Effects of Unemployment on Property Crime: Evidence from a Period of Unusually Large Swings in the Business Cycle," Working Paper Series 2003:14, Uppsala University, Department of Economics.
  19. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, vol. 112(478), pages 68-73, March.
  20. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
  21. Ehrlich, Isaac, 1973. "Participation in Illegitimate Activities: A Theoretical and Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 521-565, May-June.
  22. Freeman, Richard B., 1999. "The economics of crime," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 52, pages 3529-3571 Elsevier.
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