Inequality, Crime and Economic Growth: A Classical Argument for Distributional Equality.

This paper studies the dynamic general-equilibrium interactions between inequality, crime and economic growth by embedding the rational choice-theoretical approach to criminal behavior in a heterogeneous-agents endogenous-growth OLG model. Based on their respective opportunity costs, individuals choose to specialize in either legal or criminal activities. While legal households contribute to aggregate goods supply over time by either working or building human capital, criminals make a living by expropriating legal citizens of part of the latter's income. An increase in inequality lowers the economy's growth rate and possesses negative welfare effects for all agents with endowments equal to or above average and for agents with endowment below average that are born sufficiently far in the future. Copyright 2003 by Kluwer Academic Publishers