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Economic Disasters and Inequality

Author

Listed:
  • Bruno Coric

    (University of Split, Faculty of Economics, Cvite Fiskovica 5, 21000 Split, Croatia; CERGE-EI Foundation Teaching Fellow, 110 Jabez Street No. 1004, Newark, NJ 07105, USA)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract
This paper analyses the dynamic effects of economic disasters, captured by cumulative decline in output of at least 10 percent over 1 or more years, on disposable income inequality of a sample of 99 countries over the annual period of 1960 to 2017. Based on impulse response functions derived from a robust local projections method, we find that economic disasters increase inequality by 4%, with the overall effect being statistically significant and highly persistent over a period of 20 years following the shock. When we repeat the analysis by categorizing the 99 countries based on income groups and regions, we find that the strongest effects are felt by high-income countries (8%), and in Europe, Central Asia and North America (16%) taken together, as primarily driven by ex-socialist economies. Though of lesser magnitude, statistically significant increases in inequality are also observed for low-, and upper-middle-income economies, and the regions of Latin America and Caribbean, Middle East and North Africa (MENA) and South Asia, and to some extent also for Sub-Saharan Africa. Our findings have important policy implications.

Suggested Citation

  • Bruno Coric & Rangan Gupta, 2022. "Economic Disasters and Inequality," Working Papers 202255, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202255
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    References listed on IDEAS

    as
    1. Bruno Ćorić & Vladimir Šimić, 2021. "Economic disasters and aggregate investment," Empirical Economics, Springer, vol. 61(6), pages 3087-3124, December.
    2. Henk Berkman & Ben Jacobsen & John B. Lee, 2017. "Rare disaster risk and the expected equity risk premium," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(2), pages 351-372, June.
    3. Frederick Solt, 2020. "Measuring Income Inequality Across Countries and Over Time: The Standardized World Income Inequality Database," Social Science Quarterly, Southwestern Social Science Association, vol. 101(3), pages 1183-1199, May.
    4. Anthony B. Atkinson & Salvatore Morelli, 2011. "Economic crises and Inequality," Human Development Research Papers (2009 to present) HDRP-2011-06, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
    5. Coen N. Teulings & Nikolay Zubanov, 2014. "Is Economic Recovery A Myth? Robust Estimation Of Impulse Responses," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 497-514, April.
    6. Coric, Bruno, 2021. "Economic Disasters: A New Data Set," Finance Research Letters, Elsevier, vol. 39(C).
    7. Robert J. Barro & José F. Ursúa, 2012. "Rare Macroeconomic Disasters," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 83-109, July.
    8. Bodea, Cristina & Houle, Christian & Kim, Hyunwoo, 2021. "Do financial crises increase income inequality?," World Development, Elsevier, vol. 147(C).
    9. Bruno Ćorić, 2018. "The long-run effect of economic disasters," Applied Economics Letters, Taylor & Francis Journals, vol. 25(5), pages 296-299, March.
    10. Bouri, Elie & Gupta, Rangan & Nel, Jacobus & Shiba, Sisa, 2022. "Contagious diseases and gold: Over 700 years of evidence from quantile regressions," Finance Research Letters, Elsevier, vol. 50(C).
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    More about this item

    Keywords

    inequality; economic disasters; local projection method;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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