Crime and credit: The empirical study of how crime affects credit ratings of large U.S. cities

Abstract

Objectives: There is abundant research on crime contributors but not the cost of crime to society. In this article, we fill the gap in the literature by studying how crime affects government entities, specifically, their credit worthiness. Issues with crime may shift government expenditures away from education, welfare, and other crucial areas to law enforcement and may necessitate higher overall expenditures. Crime may also create a risk to investment, negatively affect economic development, contribute to higher poverty and unemployment rates, and to racial injustice. All these may damage credit ratings. Methods: Because of the ordinal nature of the dependent variable (credit ratings), models are estimated by ordered probit. Results: The findings in this article demonstrate that cities with higher violent (but not property) crime have consistently lower credit ratings. Policing expenses are also negatively correlated with credit ratings, although the association is only marginally significant. Conclusions: Our goal in this article was to further the literature and discussion on how cities can better recognize the facets of improving or declining credit ratings. We found that violent crime has a visible impact on the perceptions of credit risk.