Crime and Punishment Revisited

Despite an abundance of empirical evidence on crime spanning over forty years, there exists no consensus on the impact of the criminal justice system on crime activity. We argue that this may be due to the combined effect of simultaneity, omitted variable bias and aggregation bias that may confound many of these studies. We construct a new panel data set of local government areas in Australia and develop a testing framework for the implications of economic theory on crime behaviour. The empirical results suggest that the criminal justice system can potentially exert a much greater influence on crime activity than is the common view in the literature. In addition, we find that increasing the risk of apprehension and conviction is more influential in reducing crime than raising the expected severity of punishment. Violent crime is more persistent and relatively less responsive to law enforcement policies compared to non-violent crime