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The goal of this paper is to examine the effect of inequality on crime rates in a unique context, Mexico's drug war. The analysis exploits an original dataset containing inequality and crime statistics on more than 2,000 Mexican municipalities over a 20-year period. To uncover the causal effect of inequality on crime, we use an instrumental variable for the Gini coefficient that combines the initial income distribution at the municipality level with national trends. Our estimates indicate that a one-point increment in the Gini coefficient between 2007 and 2010 translates into an increase of more that 36 percent in the number of drug-related homicides per 100,000 inhabitants. The fact that the effect found during the drug war is substantially greater is likely caused by the rise in rents to be extracted through crime and an expansion in the employment opportunities in the illegal sector through the proliferation of drug trafficking organizations (DTOs), accompanied by a decline in legal job opportunities and a reduction in the probability of being caught given the resource constraints faced by the law enforcement system. Combined, the latter factors made the expected benefits of criminal activity shift in a socially undesirable direction after 2007.

Despite the prominence of the national news media, it is unclear whether elected officials are affected by the national news media in policy-consequential ways because of the difficulty of disentangling the influence of the media on Congress from Congress's influence on the media. We use a unique opportunity to determine whether position-taking behavior in Congress and the likelihood of reelection is affected by the national news media. Using the fact that the Fox News Channel spread gradually across the United States after being launched in October of 1996 in ways unrelated to the ideology of congressional districts and the incumbent representatives, we show that representatives become less supportive of President Clinton in districts where Fox News begins broadcasting than similar representatives in similar districts where Fox News was not broadcast. Moreover, the effects took a few years to be realized, and the entry of Fox News in a district did not appear to affect which representatives were reelected. Consistent with theories emphasizing the anticipatory actions taken by elected officials to maximize their electoral security in the face of changing electoral conditions, our results suggest that the national media may slightly affect the prospects for policy change by altering representatives' expectations and the positions that they take.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Evidence of a causal effect of inequality on crime is scarce in developing countries. This paper estimates the effect in a unique context: Mexico's Drug War. The analysis exploits a unique dataset containing inequality and crime statistics for more than 2,000 Mexican municipalities over a 20-year period. An instrumental variable for the Gini coefficient combines the initial income distribution at the municipality level with national trends. The results indicate that a one-point increment in the Gini between 2006-2010 translates into an increase of over 10 drug-related homicides per 100,000 inhabitants. These effects are smaller between 1990 and 2005. The fact that the effect found during the Drug War is substantially higher is likely because the cost of crime decreased with the proliferation of gangs (lowering the marginal cost of criminal behavior), which, combined with rising inequality in some municipalities, increased the expected net benefit of criminal acts after 2005.Keywords: Income Inequality; Crime; Instrumental Variables; Mexico JEL classification: C26, D74, H70, I3, O54 1 Princeton University. E-mail: tede@princeton.edu 2 World Bank. E-mail: lflopezcalva@worldbank.org (corresponding author). 3 World Bank. E-mail: crodriguezc@worldbank.org 4 World Bank. E-mail: hwinkler@worldbank.org The authors would like to thank Alan Fuchs, Samuel Freije-Rodríguez and participants of the third Summer Initiative for Research on Poverty, Inequality and Gender of the World Bank for their thoughtful comments, and Eduardo Ortiz-Juarez and Daniel Valderrama for invaluable research assistance. The findings, interpretations and conclusions in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank Group, its Executive Directors, or the countries they represent. 2 IntroductionThe question of what is the effect of inequality on crime has been a matter of interest among many researchers and policy analysts. While most of the literature on this topic finds a positive effect of inequality on crime, the empirical evidence has fallen short in establishing an unambiguous direction of causality (see Pridermore, 2011), as well as on whether the effect holds for different types of violent crime. Moreover, when focusing on developing countries the available evidence is weaker given that reliable and comparable crime statistics tend to be scarce. In addition, scholars have faced other major challenges when delving into this subject. For example, cross-country studies are usually biased by measurement error and omitted variables problems, and they are also limited by smallsample sizes. Reverse causality is a matter of concern, since increasing crime rates might also affect inequality by, for example, encouraging richer residents to move out of violent locations.Neumayer (2005) points out that focusing on within-country variation could be a remedy to the difficulty to control for confounding factors at the country level and to the small-sample problem that arises in cross-c...