Association for Public Policy Analysis & Management

In this paper, I explore how property crime can affect general equilibrium behavior of households and firms in both a static and dynamic setting. Given that available data is insufficient for separating causality and reverse causality, I explicitly model behavior and the choice to commit property crime. In addition, I explore what the best method for funding the police is over the business cycle as well as the optimal rate of taxation for policing. My results suggest that households would need to be compensated 1.81 - 3.34% of GDP in order to be as well off as they would be if crime did not exist. This is up to 11 times the actual value of lost GDP that is reported. In addition, my results suggest that funding policing with a fixed tax results in higher welfare and income than fixed revenue. Finally, households would prefer that the tax rate for policing be about 75\% of the current rate, but this results assumes all policing is used for fighting property crime and not other activities.