Crime as a Social Cost of Poverty and Inequality: A Review Focusing on Developing Countries



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at it from a theoretical perspective. The need for some theoretical analysis
arises from the fact that the relationship between poverty, inequality and
criminality is not as simple as the preceding argument would suggest. In
particular it is important to keep in mind that crime deterrence and
protection expenditures are endogenous. As they may depend themselves
on the degree of inequality, it is not clear what the effect of inequality on
crime is on balance. Another concern that justifies some theoretical
analysis is that casual observation suggests that property crime, which
correspond to the simple economic model alluded to above, is not the
only type of urban criminality and the only cause of urban violence. Deadly
gang wars across poor neighborhoods, murders and crimes caused by or
linked to alcohol, drug consumption, and drug dealing are in many large
cities of the developing and the developed world the everyday expression
of urban criminality and violence. Can we think of some economic model
to explain the appearance of these phenomena and their deleterious effects
on the communities and neighborhoods where they take place? Or, again,
is the explanation to be mostly found elsewhere?

The need for theoretical reasoning also arises because of the paucity of
relevant data to measure the importance of these various phenomena and
how they may relate to various economic and social factors. As we shall
see, data on crime and violence arc very scarce and often not comparable
across countries. The problem is still worse in developing countries.
Interpreting the little evidence that is available thus requires more reliance
on a priori arguments and hypotheses borne out from simple economic
analysis than it would be the case if a more data intensive statistical analysis
were possible.

This being said, it turns out that available evidence, even though it is
limited, suggests that inequality and poverty may indeed have a significant
positive effect on criminality’ Cross-country differences are not inconsistent
with such a view but they may’ be contaminated by various fixed effects
and may not be very convincing. Pooled cross-section time-series data
give stronger evidence that changes in poverty or inequality are generally
accompanied by changes in criminality and that this effect exhibits some
persistence. There is also evidence that the social cost of crimes in countries
with a higher than average level of criminality may be considerable. Rough
estimates suggest, for instance, that the cost of crime may be larger than
7 per cent of CiDP in Latin America, in comparison with 4 per cent in the

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