Income Distribution and Economic Crises
This paper analyzes the relationship between income distribution and the severity of economic crises, where the severity is measured by the length and the depth of the recessions. Using an extensive panel dataset on income distribution and employing an event study framework, we find significant evidence that there is a negative association between the prevailing degree of income inequality and the severity of the recessions. In the case of high income countries that have bad income distribution, however, recessions are observed to be longer than the average. This observation is likely to result from the combination of the strong status-quo bias of the financially powerful income groups and the available means to redistribute towards the poor so as to help mitigate the pressures for reforms to improve income distribution via creative destruction. The longer period of recessions observed in developed countries than in less developed countries in the aftermath of the Great Recession is in support of this argument. The findings also reveal that recessions tend to be longer during the decade of the 1990s than the rest of the period studied. The evidence regarding the corrective effect on the recessions of accommodative fiscal or monetary policy stance, measured by the size of the government and the inflation rate, is observed to be only barely significant on average. With regard to the impact of recessions on income distribution, the evidence in the paper indicates that the post-crises income distribution worsens significantly with the length but improves with the depth of the preceding recession. We also note that, in addition to the persistence effect, the lack of monetary discipline worsens income distribution in the postcrises period significantly.
|Date of creation:||Nov 2015|
|Contact details of provider:|| Postal: Rumelifeneri Yolu, Sarıyer, 34450 İstanbul|
Web page: http://erf.ku.edu.tr
More information through EDIRC
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.:
- Perugini, Cristiano & Hölscher, Jens & Collie, Simon, 2013. "Inequality, credit expansion and financial crises," MPRA Paper 51336, University Library of Munich, Germany.
- Berg, Andrew & Ostry, Jonathan D. & Zettelmeyer, Jeromin, 2012.
"What makes growth sustained?,"
Journal of Development Economics,
Elsevier, vol. 98(2), pages 149-166.
- Jonathan David Ostry & Andrew Berg & Jeronimo Zettelmeyer, 2008. "What Makes Growth Sustained?," IMF Working Papers 08/59, International Monetary Fund.
- Siong Hook Law & Hui Boon Tan & W. N. W. Azman-Saini, 2014. "Financial Development and Income Inequality at Different Levels of Institutional Quality," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(1S), pages 21-33, January.
- Siong Hook Law & Hui Boon Tan & W. N. W. Azman-Saini, 2014. "Financial Development and Income Inequality at Different Levels of Institutional Quality," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 50(1S), pages 21-33, January.
- Giorgio Bellettini & Flavio Delbono, 2013. "Persistence of High Income Inequality and Banking Crises: 1980-2010," CESifo Working Paper Series 4293, CESifo Group Munich.
- G. Bellettini & F. Delbono, 2013. "Persistence of high income inequality and banking crises: 1980-2010," Working Papers wp885, Dipartimento Scienze Economiche, Universita' di Bologna.
When requesting a correction, please mention this item's handle: RePEc:koc:wpaper:1523. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sumru Oz)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.