Fiscal Consolidation and Income Inequality in Latin America and the Caribbean

The new IMF Regional Economic Outlook finds that “Fiscal consolidations have very little effects on income inequality in LAC. Point estimates are positive but very small––the market Gini increases by 0.03 units after two years––and are not statistically significant (Figure 4.1.1, panel 1). This is despite a reduction in output of about 1 percent and an increase in unemployment of 0.3 of a percentage point, as demonstrated in the main text. Focusing on the distribution of disposable income does not affect these results, with the Gini coefficient being relatively insensitive to fiscal consolidation shocks.”

It also notes my previous works that “For advanced economies, there is evidence that fiscal consolidation tends to increase income inequality, with especially strong effects when the consolidation is spending-based (Ball and others 2013; Furceri, Jalles, and Loungani 2015; Woo and others 2017).”

Ball, Furceri, Leigh, and Loungani  (2013) is available here. Furceri, Jalles, and Loungani (2015) is available here.

Posted by at 2:48 PM

Labels: Inclusive Growth


Subscribe to: Posts