Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2005:19: Inequality and crime: separating the effects of permanent and transitory income

Matz Dahlberg () and Magnus Gustavsson ()
Additional contact information
Matz Dahlberg: IFAU - Institute for Labour Market Policy Evaluation, Postal: P O Box 513, SE-751 20 Uppsala, Sweden
Magnus Gustavsson: Department of Economics, Uppsala University, Postal: P O Box 513, SE-751 20 Uppsala, Sweden

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.

Keywords: Crime; permanent income; transitory income

JEL-codes: J30; K40

34 pages, June 27, 2005

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