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Zooming in: From Aggregate Volatility to Income Distribution

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  • César Calderón and Eduardo Levy Yeyati

Abstract

In contrast with a growing literature on the drivers of aggregate volatility in developing countries, its consequences in terms of individual incomes have received less attention. This paper looks at the impact of cyclical output fluctuations and extreme output events (crises) on unemployment, poverty and inequality. We find robust evidence that aggregate volatility has a regressive, asymmetric and non linear impact, as reflected in the strong influence of extreme output drops. Our test shows that, in addition to the mitigating role of personal wealth, public expenditure and labor protection exert a similar benign effect. These findings are in line with the income substitutions view of social safety nets, and cast a new light on the value of social programs and labor market regulation in crisis prone developing countries.

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Bibliographic Info

Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number 2007-03.

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Length: 36 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:udt:wpbsdt:2007-03

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  1. Easterly, William & Loayza, Norman & Montiel, Peter, 1997. "Has Latin America's post-reform growth been disappointing?," Journal of International Economics, Elsevier, vol. 43(3-4), pages 287-311, November.
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  8. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2006. "Growth volatility and financial liberalization," Journal of International Money and Finance, Elsevier, vol. 25(3), pages 370-403, April.
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  13. International Monetary Fund, 2002. "Financial Crises, Poverty, and Income Distribution," IMF Working Papers 02/4, International Monetary Fund.
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  17. Vivek Arora & Athanasios Vamvakidis, 2005. "How Much Do Trading Partners Matter for Economic Growth?," IMF Staff Papers, Palgrave Macmillan, vol. 52(1), pages 24-40, April.
  18. Paolo Mauro & Törbjörn I. Becker, 2006. "Output Drops and the Shocks That Matter," IMF Working Papers 06/172, International Monetary Fund.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. ¿Qué he hecho yo para merecer esto? Crecimiento latinoamericano y viento global
    by Luciano in Economista Serial Crónico on 2011-12-01 00:58:00
  2. ¿Qué he hecho yo para merecer esto? Crecimiento latinoamericano y viento global
    by Eduardo Levy-Yeyati in Foco Económico on 2011-11-30 12:00:00
  3. Volatility Drives Income Inequality
    by vngalasso in Toppling Inequality on 2012-09-08 12:56:43

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