This week my ECONS101 class covered, among other things, the difference between causation and correlation. When two variables appear to move together, the relationship might be causal. We might even be able to tell a good story of why the relationship is causal. However, there may be other explanations for the relationship.
For example, take the relationship between poverty and crime. It is well established that poor people commit more crime. Is that because poverty causes people to commit more crime? Many people think so. Being poor means that people lack access to resources, and they may try to obtain those resources through crime. Alternatively, perhaps being poor leads to anger, frustration, or resentment, which leads poor people to commit more crime.
On the other hand, perhaps there is reverse causation - people who commit more crime may make themselves poorer. Being caught and punished through fines or imprisonment will reduce a person's financial resources, making them more likely to be poor. Or, perhaps there is some confounding (or a common cause), and both poverty and crime are related to some third variable. Education is a possibility, since people with more education tend to earn more (and be less at risk of poverty), and also commit less crime. The local unemployment rate might also be a confounder, since when unemployment is higher, poverty will also be higher, and unemployment is also associated with crime.
Putting all of that together, it isn't clear that there is a causal relationship between poverty and crime. We would need some careful research to try and identify whether the relationship is causal. Fortunately, we have this 2023 NBER working paper by David Cesarini (New York University) and co-authors, to provide us with some evidence. Cesarini et al. look at the impact of winning the lottery in Sweden on criminal convictions. They are fortunate in two ways. First, they have data from the register of criminal convictions on all convictions between 1975 and 2017. And second and more importantly, they are able to match the conviction data to four samples of lottery players. Their sample includes over 350,000 lottery wins by over 280,000 individuals. They also look at the effects on children (of their parents winning the lottery), where they have a sample of over 100,000 children.
The cool thing about this analysis is that Cesarini et al. can look at what happens to criminal behaviour, comparing people who are otherwise similar but win the lottery (and therefore are less poor) with those who did not win the lottery (and therefore are just as poor as before). This analysis should establish the causal impact of financial resources on crime (and therefore by extension also the causal impact of income or wealth on crime).
For the adult analysis, Cesarini et al. find:
...a positive but statistically insignificant effect of lottery wealth on criminal behavior. The point estimate of our main outcome of interest — conviction for any type of crime within seven years of the lottery event — suggests 1 million SEK (about $150,000) increases conviction risk by 0.28 percentage points (10.2%). The 95% confidence interval allows us to reject reductions in conviction risk larger than 0.16 percentage points (5.8%). We find no clear evidence of differential effects across types of offenses.
In other words, lack of financial resources does not cause crime in this sample. If it did, then the increase in financial resources arising from the lottery win would lead to less crime. Or, lack of financial resources does cause crime, the effect is very small. Turning to the effect on children, Cesarini et al. find:
...an effect of parental financial resources on child delinquency close to zero, but non-trivial effects in either direction cannot be ruled out. The 95% confidence interval for the effect of 1 million SEK ranges from a 1.36-percentage-point reduction (12.9%) to a 1.54-percentage-point (14.6%) increase in conviction risk.
Again, the central estimate of the effect of financial resources on crime is zero, albeit with less certainty in the result. The takeaway is that a lack of parental financial resources does not cause crime among children. Both results point to a lack of a causal impact of financial resources on crime. Cesarini et al. conclude that:
Our results therefore challenge the view that the relationship between crime and economic status reflects a causal effect of financial resources on adult offending.
It is likely, then, that the observed correlation between poverty and crime arises as a result of reverse causation (in my view possible, but unlikely), or confounding. That has clear implications for policy, because it suggests that focusing on reducing poverty is unlikely to have any impact on crime. Now, this study was conducted in Sweden, and these results might not hold in other contexts. However, they should make us question more strongly the prevailing view that poverty is a driver of crime.
[HT: Marginal Revolution, back in December 2023]
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