The rise in inequality after pandemics: can fiscal support play a mitigating role?

Abstract

Major epidemics of the last two decades (SARS, H1N1, MERS, Ebola, and Zika) have been followed by increases in inequality [Furceri et al. (2020), COVID Economics, 12, 138–157]. In this article, we show that the extent of fiscal consolidation in the years following the onset of these pandemics has played an important role in determining the extent of the increase in inequality. Episodes marked by extreme austerity—measured using either the government’s fiscal balance, health expenditures, or redistribution—have been associated with an increase in the Gini measure of inequality three times as large as in episodes where fiscal policy has been more supportive. We survey the evidence thus far on the distributional impacts of the COVID-19 pandemic, which suggests that inequality is likely to increase in the absence of strong policy actions. We review the case made by many observers [IMF (2020), Fiscal Monitor; Stiglitz (2020), Finance & Development, Fall 2020; Sandbu (2020b), Financial Times, 26 November 2020)] that fiscal support should not be withdrawn prematurely despite understandable concerns about high public debt-to-GDP ratios.

COVID-19 and (gender) inequality in income: the impact of discretionary policy measures in Austria

“…13 However, as argued by Furceri et al. ( 2021 ), the observed cushioning effect of policy measures might not be long-lasting. As they have shown, the rise in inequality following after major epidemics over the last two decades (SARS, H1N1, MERS, Ebola and Zika) has been higher in episodes of greater austerity.…”

Economic and behavioral determinants of forced household savings during the COVID-19 pandemic

“…The negative sign of the coefficient regarding the change of structural general government balance may also have another interpretation. Furceri et al ( 2021 ) showed, using previous episodes of other pandemics that if fiscal response is strongly supportive, inequality barely increases in the aftermath of pandemics. On the other hand, austerity leads to a significant increase in inequality.…”

“…She also shows that significant substitution effects between consumption categories are observed. Furceri et al ( 2021 ) focus on the distributional consequences of major pandemics in the past two decades and show that they led to increases in the Gini coefficients and a greater income share amongst higher-income deciles. Krueger et al ( 2020 ) combine a macroeconomic model with an epidemiological model estimated on Swedish health data.…”

Reconsidering macroeconomic policy prescriptions with meta-analysis

“…Gechert et al (2021b) show this feature consistently for macro and micro data from Germany. Furceri et al (2021) point out that pandemics require persistent government support of low incomes in order to prevent inequality that typically follows after pandemic-induced austerity.…”