The economic costs of insecurity on businesses in Mexico: A general equilibrium perspective

This article contributes to the study of the economic consequences of crime among businesses in Mexico. To this end, we construct a static general equilibrium model of the Mexican economy based on a social accounting matrix, introducing crime as a combination of sales or capital use taxes. We found that the effects of crime on businesses in Mexico (robbery, extorsion and the costs of crime prevention) are not minor. Calibrating the tax rates with the Enterprise Survey of the World Bank, the loss for the insecurity is of the order of 4 to 5 percent of GDP. Even the model is static, this study contributes to the literature, since it shows that if firms are able to shift the crime tax forward, the household losses are equivalent to a proportional tax. To the extent that firms shift it backward, especially to capital, crime functions as a progressive tax.