Financial Crises, Poverty, and Income Distribution
IMF Working Papers, January 1, 2002
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Bibliographic details
- Published: January 1, 2002
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451842050.001
Overview
- Developing and transition economies are prone to financial crises, including balance of payments and banking crises.
- Financial crises affect poverty and the distribution of income through a variety of channels: slowdowns in economic activity, relative price changes, and fiscal retrenchment, among others.
- The paper deals with the impact of financial crises on the incidence of poverty and income distribution, and discusses policy options that can be considered by governments in the aftermath of crises.
- Empirical evidence, based on both macro- and microlevel data, shows that financial crises are associated with an increase in poverty and, in some cases, income inequality.
Key findings and evidence
- Financial crises are associated with an increase in poverty.
- In some cases, financial crises are associated with increases in income inequality.
- Channels through which crises affect poverty and income distribution:
- Slowdowns in economic activity.
- Relative price changes.
- Fiscal retrenchment.
- Other channels discussed in the paper (microlevel and macrolevel evidence).
Policy recommendations and short-term propoor responses
- Provision of targeted safety nets remains the main short-term propoor policy response to financial crises.
- Protection of specific social programs from fiscal retrenchment is recommended as a principal short-term policy measure.