Inequality and Violent Crime

In this article we take an empirical cross-country perspective to investigate the robustness and causality of the link between income inequality and crime rates. First, we study the correlation between the Gini index and, respectively, homicide and robbery rates along different dimensions of the data (within and between countries). Second, we examine the inequality-crime link when other potential crime determinants are controlled for. Third, we control for the likely joint endogeneity of income inequality in order to isolate its exogenous impact on homicide and robbery rates. Fourth, we control for the measurement error in crime rates by modelling it as both unobserved country-specific effects and random noise. Lastly, we examine the robustness of the inequality-crime link to alternative measures of inequality. The sample for estimation consists of panels of non-overlapping 5-year averages for 39 countries over 1965-95 in the case of homicides, and 37 countries over 1970-1994 in the case of robberies. We use a variety of statistical techniques, from simple correlations to regression analysis and from static OLS to dynamic GMM estimation. We find that crime rates and inequality are positively correlated (within each country and, particularly, between countries), and it appears that this correlation reflects causation from inequality to crime rates, even controlling for other crime determinants.