Larceny in the Product Market: A Hidden Tax? 
The “hidden tax” resulting from larceny crime refers to the higher prices paid by consumers to producers who raise prices in order to pass on some of the associated cost of such theft. In the same vein, consumers who are victimized by larceny theft could pass along some of the associated cost that they bear by spending less. This study analyzes larceny crime as a hidden tax in order to examine its welfare implications. Using traditional tax theory, the authors first characterize how larceny crime might create distortions in a given product market. Employing a sample covering 17 US states during the 2000–2015 period, they then use the enactment of higher felony larceny thresholds to generate exogenous variation in larceny crime by product market. A felony larceny threshold is the dollar value of stolen property at or above which a larceny offense may be charged in court as a felony rather than a misdemeanor. Focusing on the subset of larceny crime that is likely most affected by raising the larceny threshold, the authors calculate baseline hidden tax rates and then examine how changes in larceny rates related to higher thresholds affect this tax. They use these estimated changes in the hidden tax rates to compare the associated welfare costs of larceny crime across product markets.
Key Findings
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Within five years, enactment of higher felony larceny thresholds causes notable shifts in a subset of larceny crime for some product markets, including a 39 percent decrease in the larceny rate for automobiles and a 22 percent increase in the larceny rate for jewelry and purses/wallets.
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Across product markets, the baseline hidden tax rates (before enactment of higher larceny thresholds) are fairly small compared with some conventional tax rates, ranging from 0.1 percent to 0.4 percent.
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A 1 percent increase in the larceny rate for a given product market raises the hidden tax rate by 0.7 percent (automobiles) to 1.2 percent (computers).
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Such exogenous changes in the hidden tax rate imply a welfare change that ranges from a $1,500 annual loss for the computer hardware/software market in each state to a $4,700 annual gain for the automobile market in each state.
Implications
The authors’ findings indicate that changes in the hidden tax resulting from exogenous increases in larceny crime can differ across product markets. Overall, however, the welfare cost from raising felony larceny thresholds, as measured by the hidden tax associated with larceny crime, is not large.
Abstract
This paper compares the distortionary impact of larceny theft across different product markets, characterizing such crime as a “hidden tax” on producers or consumers. We estimate the size of this tax and how it is affected by exogenous changes in larceny rates driven by the enactment of higher felony larceny thresholds. Pre-enactment hidden tax rates are small, ranging from 0.1 percent to 0.4 percent. These tax rates rise or fall with enactment, varying by product market. Such exogenous changes in the hidden tax induce state-level annual welfare changes that are minimal, ranging from –$1,500 to $4,700 across product markets.