The Effect of Macroeconomic Instability on Financial Crimes in Iran

Instability reduces the opportunity costs of crime against property by reducing opportunities in the legal sector. Instability causes that the wage which criminal can earn by working instead of committing a crime would be uncertain. Therefore illegal activities would be less risky rather than what they would be without instability. The aim of this study is to investigate the impact of macroeconomic instability on crime in the Iranian economy during the period 1984-2011. Macroeconomic instability in two methods- Glezakos, and Hodrick-Prescott filter- was calculated. Then the effect of macroeconomic instability on financial crimes, in case of two scenarios, has been estimated by econometrics of time series (cointegration and error correction model).
Results show that macroeconomic instability in the short-run and long-run has positive and significant effect on financial crimes. Also the control variables such as ratio of urbanization, economic growth and unemployment rate have positive effect and the Gini coefficient has negative effect on financial crimes. The coefficient of error correction term indicates that 50 (in first scenario) and 60 percent (in second scenario) deviation of financial crimes from it’s long-run amount is being corrected in each period.