A Time varying parameter approach to analyze the macroeconomic consequences of crime

Criminal activity performs like a tax on the entire economy:
it discourages domestic and foreign direct investments,
it reduces firms’ competitiveness, and reallocates resources
creating uncertainty and inefficiency. Although the impact
of economic variables on crime has been widely investigated,
there is not much concern about crime also affecting the
overall economic performance. This work aims to bridge
this gap by presenting an empirical analysis of the macroeconomic consequences of criminal activity. Italy is the case study for the time span 1979-2002. Dealing with a state space framework, a time varying parameter approach is employed to measure the impact of criminality on real Gross
Domestic Product along time, and to measure the asymmetric
impact in recession and expansion periods. The analysis
is completed evaluating the effects of crime fluctuations in
the long period by an impulse response analysis.