The Promise and Perils of Digital Finance: Evidence from Crime Rate in China

The world has witnessed the rapid development of digital finance and its significant contribution to the economy. Under the theoretical model of criminal economics, this paper explores the social effects of digital finance from the perspective of crime using the unique household survey data in China. The results show that the local total crime incidence rate can be reduced, and the inhibitory effect is more pronounced in areas: (a)with a high mobile phone usage rate and (b) with a low proportion of older adults. However, the reducing effect is limited to property crimes such as theft and robbery and has no significant effect on fraud and crimes against personal rights. There are also significant heterogeneous effects between various digital finance services and property crimes as well as non-property crimes. In addition, the mechanism could be that digital finance reduces cash payment and promotes entrepreneurship by lowering the expected utility and increasing the opportunity cost of committing the property crimes. Overall, these findings provide new evidence on the social influence of digital finance, and wider implications for countries with the unprecedent development of digital finance.