Economic Shocks, Inequality and Poverty: the Need for Safety Nets
By Nora Lustig (06/98, En) See also Poverty and Inequality
Empirical evidence suggests that macroeconomic shocks can result in substantial increases in inequality and poverty. Latin America has experienced two major crises in the last 15 years. In the 1980s, Mexico's debt crisis spread throughout Latin America on the back of trade shocks and weak public finances. In 1995, Mexico's liquidity crisis, spread only to Argentina.
How did poverty and income distribution change when countries had to endure stagnant or negative growth? In Brazil, Guatemala, Mexico, Panama and Venezuela poverty and inequality increased during the 1980s, and so did poverty and inequality in the urban areas of Argentina, Bolivia, Chile, Honduras and Peru. Similarly, urban poverty and inequality in Argentina rose sharply during the 1995 crisis. (Data for Mexico has not yet been released by the authorities). Although the poorest quintile of the population was not always hurt disproportionately, their average income fell. Clearly, income downturns can have a more devastating impact on those living close to subsistence. Furthermore, in country after country hit by the crisis, the income share of the top 10 percent increased, sometimes substantially.
Last updated: 05/08/07
