Income distribution and economic crises

Abstract

This study presents an original empirical analysis of the relationship between income inequality and recession severity, measured by the length and depth of recessions. For this purpose, an extensive panel data set was constructed, whereby each observation corresponded to a recession episode. The empirical analysis yielded two novel findings. First, pre‐recession inequality and recession severity are weakly related to each other, as a negative and statistically significant relationship is only observed for middle and high levels of income and governance. Second, the relationship between recession length and post‐recession income inequality is positive and highly significant in low‐ and middle‐income countries. This relationship is insignificant in high‐income countries due, possibly, to their high capacity to accommodate for the impacted low‐income groups.

Income Inequality, Capitalism and Ethno-Linguistic Fractionalization

“…We construct averages of the Gini coefficients across five years to align them with the frequency of the EF index. 2 Gini coefficients can be calculated for gross income (i.e., before taxes and transfers) and net income (i.e., after taxes and transfers). In this part of the analysis we use gross income Gini coefficients, as we are interested in the income distribution resulting from market processes.…”

“…3 Since Jaumotte, Lall, and Papageorgiou (2013) find 1 Indeed, the papers discussed in the next section examining the relationship between redistribution and fractionalization draw their measure of redistribution from the EF index. 2 To be precise, the EF index reflects the time period t − 3, when the five-years average of the Gini coefficients is centered at period t. Also the control variables have been constructed in this way. This time lag is to avoid endogeneity issues.…”