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Financial Crises, Poverty, and Income Distribution

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Author Info
Emanuele Baldacci
Gabriela Inchauste
Luiz de Mello

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Abstract

Developing and transition economies are prone to financial crises, including balance of payments and banking crises. These crises affect poverty and the distribution of income through a variety of channels: slowdowns in economic activity, relative price changes, and fiscal retrenchment, among others. This paper deals with the impact of financial crises on the incidence of poverty and income distribution, and discusses policy options that can be considered by governments in the aftermath of crises. Empirical evidence, based on both macro- and microlevel data, shows that financial crises are associated with an increase in poverty and, in some cases, income inequality. The provison of targeted safety nets and the protection of specific social programs from fiscal retrenchment remain the main short-term propoor policy responses to financial crises.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/4.

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Length: 47 pages
Date of creation: 15 Jan 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/4

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Related research
Keywords: Financial crisis ; Poverty ; Income distribution ; Mexico ; Economic models ;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," NBER Working Papers 5437, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Ferreira, Francisco & Prennushi, Giovanna & Ravallion, Martin, 1999. "Protecting the poor from macroeconomic shocks," Policy Research Working Paper Series 2160, The World Bank. [Downloadable!]
  3. Gian Maria Milesi-Ferretti & Assaf Razin, 1996. "Current Account Sustainability - Selected East Asian and Latin American Experiences," IMF Working Papers 96/110, International Monetary Fund.
    Other versions:
  4. Kaminsky, Graciela & Lizondo, Saul & Reinhart, Carmen M., 1997. "Leading indicators of currency crises," Policy Research Working Paper Series 1852, The World Bank. [Downloadable!]
    Other versions:
  5. Barry Eichengreen & Andrew K. Rose, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Papers 6370, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Mattias Lundberg & Lyn Squire, 2003. "The simultaneous evolution of growth and inequality," Economic Journal, Royal Economic Society, vol. 113(487), pages 326-344, 04. [Downloadable!] (restricted)
  7. James E. Foster & Miguel Székely, 2001. "Is Economic Growth Good for the Poor? Tracking Low Incomes Using General Means," RES Working Papers 4269, Inter-American Development Bank, Research Department. [Downloadable!]
  8. César Patricio Bouillon & Arianna Legovini & Nora Lustig, 2003. "Rising Inequality in Mexico: Household Characteristics and Regional Effects," The Journal of Development Studies, Taylor and Francis Journals, vol. 39(4), pages 112-133, April. [Downloadable!] (restricted)
  9. Blejer, Mario I & Guerrero, Isabel, 1990. "The Impact of Macroeconomic Policies on Income Distribution: An Empirical Study of the Philippines," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 414-23, August. [Downloadable!] (restricted)
  10. Ravallion, Martin & Chen, Shaohua, 1997. "What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?," World Bank Economic Review, Oxford University Press, vol. 11(2), pages 357-82, May.
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  11. Datt, Gaurav & Ravallion, Martin, 1998. "Why Have Some Indian States Done Better Than Others at Reducing Rural Poverty?," Economica, London School of Economics and Political Science, vol. 65(257), pages 17-38, February. [Downloadable!] (restricted)
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  12. Sen, Amartya K, 1976. "Poverty: An Ordinal Approach to Measurement," Econometrica, Econometric Society, vol. 44(2), pages 219-31, March. [Downloadable!] (restricted)
  13. Lanjouw, Peter & Ravallion, Martin, 1999. "Benefit Incidence, Public Spending Reforms, and the Timing of Program Capture," World Bank Economic Review, Oxford University Press, vol. 13(2), pages 257-73, May.
  14. Ravallion, Martin, 2000. "Are the poor protected from budget cuts? theory and evidence for Argentina," Policy Research Working Paper Series 2391, The World Bank. [Downloadable!]
  15. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gerald Epstein & Ilene Grabel, 2007. "Financial Policy," Publications 3, International Policy Centre for Inclusive Growth. [Downloadable!]
  2. Ricardo N. Bebczuk, 2008. "Dolarización y Pobreza en Ecuador," Working Papers 0066, CEDLAS, Universidad Nacional de La Plata. [Downloadable!]
  3. Honohan, Patrick, 2005. "Banking sector crises and inequality," Policy Research Working Paper Series 3659, The World Bank. [Downloadable!]
  4. Martín González-Rozada, Mirta Molinari and Mario Virgolini, 2008. "The Economic Impact of Smoke-Free Laws on the Sales of Bars and Restaurants in Argentina," Business School Working Papers 2008-03, Universidad Torcuato Di Tella. [Downloadable!]
  5. Biswa N. Bhattacharyay, 2009. "Towards a Macroprudential Surveillance and Remedial Policy Formulation System for Monitoring Financial Crisis," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Marcos Chamon & Irineu E. Carvalho Filho, 2008. "The Myth of Post-Reform Income Stagnation: Evidence from Brazil and Mexico," IMF Working Papers 08/197, International Monetary Fund. [Downloadable!]
  7. Marina Halac & Sergio Schmukler, 2003. "Distributional effects of crises : the role of financial transfers," Policy Research Working Paper Series 3173, The World Bank. [Downloadable!]
  8. Calderon, Cesar & Yeyati, Eduardo Levy, 2009. "Zooming in : from aggregate volatility to income distribution," Policy Research Working Paper Series 4895, The World Bank. [Downloadable!]
    Other versions:
  9. Philip Arestis, Asena Caner, 2004. "Financial Liberalization and Poverty: Channels of Influence," Economics Working Paper Archive 411, Levy Economics Institute, The. [Downloadable!]
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