Casino Capitalism? The Impact of Financial Crises on Inequality, 1970 to 2016

Abstract

The ways in which countries have reacted to financial crises varies considerably. While income inequality has grown in more than half of the EU member states after the Great Recession, some countries such as the United States have experienced a significant increase in wealth inequality. A number of countries, by contrast, was able to keep these inequities at bay. We argue in this paper that the impact of financial crises on inequality differ between the type and severity of these economic shocks and that sovereign debt and exchange rate rather than banking crises increase the economic inequities. The paper also examines the extent to which fiscal constraints of governments and membership in the Eurozone mediate these effects. We examine the diverse income and wealth inequality effects to more than 50 financial crises across the OECD member states from 1970 to 2010. The empirical evidence gathered so far supports our conjecture of different distributive effects of varying types of crises.