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

Abstract Objective: To assess the economic losses for households and firms produced by crime to business in Mexico. Methodology: A general equilibrium model of Mexico is built. The costs of business insecurity are introduced as a combination of sales and capital taxes. The rates were calibrated with the Enterprise Survey of the World Bank. Results: The loss for insecurity on business in Mexico is in the order of 4 to 5 percent of the GDP. Limitations: The modeling does not consider the dynamics of the process nor the cost of insecurity in the primary sector. Originality: It is found that if firms can shift the crime tax forward, the household losses become equivalent to a proportional tax. To the extent that firms shift the tax backwards, especially to capital, crime functions as a progressive tax. Conclusions: Business insecurity has significant consequences on the Mexican economy.