The Rise in Inequality after Pandemics: Can Fiscal Support Play a Mitigating Role?

By Davide Furceri, Prakash Loungani, Jonathan David Ostry, Pietro Pizzuto

April 30, 2021

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Davide Furceri, Prakash Loungani, Jonathan David Ostry, and Pietro Pizzuto. The Rise in Inequality after Pandemics: Can Fiscal Support Play a Mitigating Role?, (USA: International Monetary Fund, 2021) accessed December 30, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Major epidemics of the last two decades (SARS, H1N1, MERS, Ebola and Zika) have been followed by increases in inequality (Furceri, Loungani, Ostry and Pizzuto, 2020). In this paper, 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 We review the case made by many observers (IMF 2020; Stiglitz 2020; Sandbu 2020b) that fiscal support should not be withdrawn prematurely despite understandable concerns about high public debt-to-GDP ratios.

Subject: COVID-19, Expenditure, Fiscal policy, Fiscal stance, Health, Health care spending, Income, Income inequality, National accounts

Keywords: COVID-19, Fiscal stance, Global, Health care spending, Impact of pandemic, Income, Income inequality, Pandemic case, Pandemic dummy, Pandemic event, Severity of pandemic

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/120
Stock No:

WPIEA2021120
ISBN:

9781513582405
ISSN:

1018-5941

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