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Crime, Human Capital, and the Impact of Different Taxation

Author

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  • King Yoong Lim
  • Pengfei Jia
  • Ali Raza

Abstract

This paper presents a macroeconomic model with crime, human capital, and three taxation policies (consumption, labour, and capital income taxes). In an extension, we endogenize the probability of escaping punishment to depend on government expenditure on public security/police. The model is solved analytically and numerically to derive propositions, which are then verified empirically using cross-country data. Compared to the literature, we find a much higher threshold probability. Above the threshold, the equilibrium crime rate is positively related to the escape probability. In addition, above this threshold level, a rise in capital income tax or a decline in labour income tax would lead to a higher equilibrium crime rate, if the taxes are modelled using marginal tax rates. There also appears to be empirical supports where the equilibrium human capital level depends positively on consumption tax. Lastly, when the probability is endogenized, there also exists a threshold level for the spending on public security/police, above which consumption tax and capital income tax have positive e¤ects on the equilibrium level of human capital.

Suggested Citation

  • King Yoong Lim & Pengfei Jia & Ali Raza, 2018. "Crime, Human Capital, and the Impact of Different Taxation," Working Papers 220851234, Lancaster University Management School, Economics Department.
    • Handle: RePEc:lan:wpaper:220851234
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    File URL: https://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/LancasterWP2018_001.pdf
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    References listed on IDEAS

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    Citations

    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Law and Economics > Economics of Crime > Crime Prevention > Police Funding > Impact

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    Cited by:

    1. King Yoong Lim & Pengfei Jia, 2019. "Police spending and economic stabilization in a monetary economy with crime and differential human capital," NBS Discussion Papers in Economics 2019/02, Economics, Nottingham Business School, Nottingham Trent University.
    2. Leighton Vaughan Williams & Chunping Liu & Hannah Gerrard, 2019. "How well do Elo-based ratings predict professional tennis matches?," NBS Discussion Papers in Economics 2019/03, Economics, Nottingham Business School, Nottingham Trent University.

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    More about this item

    Keywords

    Apprehension risk; Crime; Human Capital; Police Spending; Taxation;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H59 - Public Economics - - National Government Expenditures and Related Policies - - - Other
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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