Does crime depend on the ‘state’ of economic misery?

This paper examines the impact of economic misery on criminal activity the small island state, Barbados, using Markov-switching models. No evidence of a contemporaneous relationship between economic misery and crime was uncovered. On the other hand, Property and Theft of Motor crime respond to the state of misery with a lag of one period, supporting the criminal motivation effect. Economic misery is in the same regime as Property crime 50 percent of the time, and with Theft from Motor crime almost 60 percent of the time. There is a procyclical contemporaneous relationship between inflation and Property crime, lasting up to two periods. Unemployment’s impact on Theft of Motor crime manifests after three periods, and supports the criminal opportunity hypothesis. Finally, Fraud-related crime and unemployment are concordant. Typical demand side policies to reduce the level of misery may not have the desired effect on crime, as reducing the unemployment rate or inflation rate respectively, could lead to an increase in the rate of crime, via the Phillips curve relationship. The most promising course of action may be supply side policies, designed to improve the long-run performance of the economy