Vinicius Carrasco e eu entrevistado o Paul Milgrom

Mimicking the “Great American Crime Decline” (Zimiring, 2007), violent crime in the state of São Paulo dropped sharply in the 2000s after rising steadily throughout the 1980s and 1990s. This paper evaluates the role of crack cocaine in explaining the aggregate dynamics in violence. Four facts are established. First, the aggregate data show a tight co-movement between the prevalence of crack cocaine and homicides. Second, using city-level apprehension and possession data, I find a strong elasticity of violent crime with respect to crack cocaine after controlling for year, city effects, and many time-varying covariates. I use the estimated elasticity to compute the contribution of crack cocaine to aggregate violence. Crack explains 30% of time series variation in the data. Third, only drug traffic – not drug possession – has an impact on homicides. Finally, I find no impact on property crimes, I find a weaker impact on attempted murder, and, interestingly, I find a weak negative impact on aggravated assault. The theory suggests that both facts – only trafficking matters and crack affects only homicides, not property crime – can be rationalized only if drug-induced crime is driven by systemic violence induced by illegality itself. These results are important for policy because they suggest that violence will not follow legalization of both the possession and the trade of cocaine or crack-cocaine.

Mimicking the US in 1980 and 1990s, Brazil is a remarkable case of a major shift in homicides. After increasing steadily throughout the 1990s and the beginning of the 2000s, homicides reached a peak in 2003, and then fell. I show a strong time-series co-movement between homicide rates and the percentage of the population in 15-24 age bracket. Using a panel of states, I find a very high elasticity of homicide with respect to changes in the 15-24 year-old population (2.4), after controlling for income, income inequality, and state and year fixed effects. I then focus on the case of São Paulo, the largest state in the country, and whose shift in homicides has been particularly acute. City-level panel elasticities are similar to the state-level estimates. Furthermore, the demographic shift in São Paulo was more pronounced than the national one, explaining the particularly large shift in homicides in São Paulo. The large cohort born from the mid 1970 through the early 1980 is the result of a sharp reduction in infant mortality only belatedly followed by acceleration in the reduction of fertility. In line with the Easterlin Hypothesis (Easterlin [1980]), this large cohort faced tough economic conditions. Educational attainment ceased to improve for this cohort, and unemployment rates upon entering the job market were exceptionally high. Thus, the large homicide shift in Brazil is produced by a particularly large and socially fragile cohort.

In 2004, Brazil provided an interesting natural experiment concerning personal credit. A new law was enacted allowing banks to offer loans with repayment through automatic payroll or social security benefit deduction, thus removing a significant part of the moral hazard problem by eliminating the choice of default when debtors are able to pay their loans out of their wages. We estimate the impact of the new law using car loans as a control group. We find that, at the industry level, the new law has caused a reduction in interest rates and an increase in the volume of personal credit.

We exploit a discontinuity in Brazilian municipal election rules to investigate whether political competition has a causal impact on policy choices. In municipalities with less than 200,000 voters mayors are elected with a plurality of the vote. In municipalities with more than 200,000 voters a runoff election takes place among the top two candidates if neither achieves a majority of the votes. We show that the possibility of runoff increases political competition. We also use the discontinuity as a source of exogenous variation to infer causality from political competition to fiscal policy. Our results suggest that political competition induces more investment and less current spending, particularly personnel expenses. Furthermore, the impact of political competition is larger when incumbents can run for reelection, suggesting incentives matter insofar as incumbents can themselves remain in office.

Using the daily frequencies of interest rates and new loans in our data as a source of identification, we estimate banks’ reactions to monetary policy committee decisions. We argue that these estimated reduced-form coefficients can be interpreted as supply shifts. The behavior of the estimates corroborates the claim that we capture supply movements because new loans (interest rate) react negatively (positively) to expected changes in the basic interest rate and reserve requirements changes. Contrary to the empirical literature we find strong evidence that larger banks react more to monetary policy shocks. Estimates are robust to an extensive sensitivity analysis.

After reaching a historic peak by the end of the 1990s, homicides in the São Paulo Metropolitan Area (SMPA) dropped sharply in years 2000s. In this paper we list the most credible causes and assess critically their roles in explaining the large shift in homicides. We document several facts: 1) the scope of the movements in homicides is not restricted to SPMA, including other large cities in the State of São Paulo; 2) several policy changes possibly contributed to the drop in homicides in the 2000s in SPMA, but their timing exclude them as an explanation for the sure in the 1990s and for the shift in homicides in the late 1990s; in addition, 3) their narrow geographical scope exclude them as an explanation for the broad geographical movements in homicides; 4) economic conditions may have contributed to the increase in the 1990s but cannot account for the late 1990s shift; 5) age structure had a significant impact on homicides; 6) the time-series pattern of homicides in other states is similar to São Paulo´s, providing further support for a common-component explanation.

Whether campaign advertising influence elections’ outcome is an open question, a paradox given the amount spent on campaigning in general and TV advertising in particular. We argue that the “absence of documentation” is due to the focus of the empirical literature on the United States, where allocation of campaign spending and advertising is decentralized. Exploring a quasi-natural experiment produced by the Brazilian legislation, we overcome the omitted variable and reverse causality problems caused by decentralized allocation. Gubernatorial elections work in a runoff system. While in the first round candidates’ TV time shares are determined by their coalitions’ share of seats in the national parliament, candidates TV time is split equally if a second round is necessary. Using differences between the first and second rounds as a source of exogenous variation, we find a large causal effect of TV advertising on voting outcomes. Since TV advertising is the most important item in campaign expenditures, this result sheds light on the effect of campaign spending on elections outcome

We document a novel type of international financial contagion whose driving force is shared financial intermediation. In the London peripheral sovereign debt market during pre-1914 period financial intermediation played a major informational role to investors, most likely because of the absence of international monitoring agencies and the substantial agency costs. Using two events of financial distress – the Brazilian Funding Loan of 1898 and the Greek Funding Loan of 1893 – as quasi-natural experiments, we document that, following the crises, the bond prices of countries with no meaningful economic links to the distressed countries, but shared the same financial intermediary, suffered a reduction relative to the rest of the market. This result is true for the mean, median and the whole distribution of bond prices, and robust to an extensive sensitivity analysis. We interpret this as evidence that the identity of the financial intermediary was informative, i.e, investors extracted information about the soundness of a debtor based on the performance of her financial intermediary. This spillover, informational in essence, arises as the flip-side of the relational lending coin: contagion arises for the same reason why relational finance (in this case, underwriting) helps alleviate informational and incentive problems,

We consider a model of repeated (relationship) lending in which some contingencies that are relevant for a bank’s decision to finance a project cannot be described contractually. The hazards related to this lack of contractibility can be magnified by actions taken by an entrepreneur. The continuation value of a lending relationship induces borrowers to take actions that minimize the ex-post conflict of interests resulting from contractual incompleteness. The optimal lending relationship is stationary on the equilibrium path. A robust feature of an optimal lending relationship is that the action schedule (as a function of project types) adopted by the entrepreneur is either a constant or a step function. Hence, the bank imposes to the entrepreneur a finite set of decisions from which he can pick his action, bounding his discretion over decisions. This leads to lower interest rates charged by the bank and to efficient refinancing in a lending relationship when compared to arm’s length financing.

We extend Bresnahan and Reiss’s (1991a) framework in order to measure the competitive effect of public ownership of banks in concentrated local banking markets in Brazil. We use variation in market size, the number of competitors and their identity to infer how conduct of private banks is affected by the entry of a public bank. We find that, while local markets whose structure is private bank duopoly are more than 35% larger than private monopolies, duopolies with one public and one private bank and private monopolies are no different with respect to market size. These results suggest that, while the presence of private banks toughens competition, public banks do not affect conduct.

A large body of literature has stressed the institution-development nexus as critical in explaining differences in countries' economic performance. The empirical evidence, however, has been mainly at the aggregate level, associating macro performance with measures of quality of institutions. This paper, by relating a judicial decision on the legality of payroll loans in Brazil to bank-level decision variables, provides micro evidence on how creditor legal protection affects market performance. Payroll loans are personal loans with principal and interests payments directly deducted from the borrowers' payroll check, which, in practice, makes a collateral out of future income. In June 2004, a high-level federal court upheld a regional court ruling that had declared payroll deduction illegal. Using personal loans without payroll deduction as a control group, we assess whether the ruling had an impact on market performance. Evidence indicates that it had an adverse impact on risk perception, interest rates, and amount lent.

Neste artigo, estima-se a contribuição da mudança na estrutura etária para a alteração nas taxas de homicídio no Estado de São Paulo entre 1991 e 2005. Para isso, usam-se tanto as variações puras ao longo do tempo como as diferenças entre cidades na dinâmica demográfica e no número de homicídios.

We use a difference-in-differences design to estimate the causal impact of the adoption of dry laws in the São Paulo Metropolitan Area (SPMA) on violent behaviour. Dry laws cause a 10% reduction in homicides. Similar impacts were found on battery and deaths by car accidents.

While most economic studies of crime have examined the determinants of criminal activity, this paper asks the reverse question: how does crime affect economic behavior? We study the relationship between crime and savings in the cities of São Paulo, a wealthy but crime-ridden state in Brazil. Our empirical results suggest that property crime is associated with an increase in savings. However, we do not observe a relationship between violent crime and savings, findings that are consistent with the theoretical explanation as to why crime induces thriftiness. These results are robust to an extensive sensitivity analysis that includes: 1) the inclusion of a large set of demographic covariates when examining cross-city variation; 2) accounting for city and period fixed effects when studying cross-city variation over time; 3) accounting for sample selection; and 4) splitting the sample by population size and income. We provide evidence that the association is not driven by reallocation towards bank deposits in general, which are safer assets in high-crime environments. Finally, we find a similar impact using household consumption and savings data.