Abstract
This paper examines the causality between income inequality and crime in Malaysia for the period 1973-2003. Autoregressive Distributed Lag (ARDL) bounds testing procedure is employed to (1) analyze the impact of income inequality on various categories of criminal activities as well as to (2) analyze the impact of various categories of criminal activities on income inequality. Interestingly our results indicate that income inequality has no meaningful relationship with any of the various categories of crime selected, such as total crime, violent crime, property crime, theft and burglary. Crime exhibits neither long-run nor short run relationships with income inequality and they are not cointegrated. It cannot be denied that there is ambiguity in the empirical studies of crime economics regarding various income variables leading to often mixed and contradicting results, which might be a good explanation of this finding.
Highlights
The impact of crime on an economy can be segregated into, primarily the prevention cost, and secondarily the correctional cost and the lost opportunity of labor being held in correctional facility
The augmented Dickey-Fuller test (Dickey and Fuller, 1981) statistics indicate that all categories of crime and income inequality economic series in Malaysia are stationary after first differencing ( I(1) ) Table 1 reports the summary statistics of all the variable chosen for this study
When the various categories of crime is used as the dependent variable, the null hypothesis of no cointegration cannot be rejected in all the cases and vice versa, when income inequality is used as the dependent variable, in all cases the null hypothesis of no cointegration cannot be rejected
Summary
The impact of crime on an economy can be segregated into, primarily the prevention cost, and secondarily the correctional cost and the lost opportunity of labor being held in correctional facility. Habibullah and Eng (2006) was able to show that underground economy Granger causes criminal activity in Malaysia. They employed vector error-correction model (VECM) in their analysis. Madden and Chiu (1998) was more specific, since he only researches about burglary, Choe (2008) tested income inequality on various type of crime while Fajnzylber et al (2002b) studied about the causes of violent crime While Becker (1968) emphasizes on the cost and benefit of crime, Ehrlich (1973) extends Becker’s crime model by including the role of opportunity cost between illegal and legal work. Madden and Chiu (1998), Fajnzylber et al (2002a) and Choe (2008) discussed about the relationship between income inequality and crime. Madden and Chiu (1998) was more specific, since he only researches about burglary, Choe (2008) tested income inequality on various type of crime while Fajnzylber et al (2002b) studied about the causes of violent crime
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