Crime, Correction, Education and Welfare – What Role Does the Government Play?

Abstract

This paper compares the effectiveness of the impact of government spending on welfare and education with that of law enforcement and correction on crime rate. Using data from fifty US States across a time period of 1994-2014, linear regression with Beck and Katz (1995) panel corrected standard errors reveals that public welfare and education spending can potentially lower violent and property crime rates but law enforcement spending can only deter property crime. However, correctional spending can corroborate both types of crimes. Further, results of two-step GMM estimation confirm the crime-reducing impact of welfare spending but not that of education or law enforcement spending. This results in the policy implication that more resources be allocated towards welfare programs. We also find little to no evidence of the presence of crowding out of one category of spending by another.