Staff Report 216

On the Political Economy of Income Redistribution and Crime

Antonio Merlo
Ayse Imrohoroglu
Peter Rupert

Published September 1, 1996

In this paper we propose a general equilibrium model where heterogeneous agents specialize either in legitimate market activities or in criminal activities and majority rule determines the share of income redistributed and the expenditures devoted to the apprehension of criminals. We calibrate our model to the U.S. economy in 1990, and we conduct simulation exercises to evaluate the effectiveness of expenditures on police protection and income redistribution at reducing crime. We find that while expenditures on police protection reduce crime, it is possible for the crime rate to increase with redistribution. We also show that economies that adopt relatively more generous redistribution policies may have either higher or lower crime rates than economies with relatively less generous redistribution policies, depending on the characteristics of their wage distribution and on the efficiency of their apprehension technology.

Published In: International Economic Review (Vol. 41, No. 1, February 2000, pp. 1-26)

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