Question

Be sure your answer is complete and include any relevant diagrams and examples. 3 paragraphs minimum.

Crime rates are higher in certain areas of a city, frequently the central city. How do residents and businesses of these areas respond to these higher crime rates? What impact does this have on the entire city? Be sure to include the effect on tax revenue, city government spending, and any other effects.

Answer 1

Crime has a drastic impact on the society , it acts as a tax on the society by increasing the costs of the government spent in litigation and social well being costs , also corrective programmes for prisoners impact by burning a hole in the revenues collected through taxes , the gross domestic product gets reduced . Crime discourages private investment and opportunities like foreign investment's . Also is the increase in financial crimes like consumption of illegal goods , hoarding of money thus leading to decrease in tax revenue and impacting government expenditure or public investment . Also it leads to rise in corruption thus favouring the unethical businesses . The social welfare of the society gets reduced.

Business and government respond by cutting their investments in the rime affected areas , residents avoid purchasing properties or real estate in and around the areas where the crimes are prevalent to ensure the safe being of their families .

The government tax is given by the yellow region as shown in the curve given below:

i.e the difference of P2-P1 represents the per unit tax on each good

When crime increases the tax revenue reduces as the supply curve shifts downwards , i.e the supply reduces due to decrease in suppliers and private investments.

The city government spending will increase to ensure the safety and security of the masses and also the resources and man hours in ensuring justice and litigation fees incurred , also the spending would further increase to take corrective actions and prisoners correction programmes , i.e building jails etc.