High Income Inequality Makes Recessions a Little Worse

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A new paper investigates the association between income inequality and recessions over the past 40 years:

It would appear that a less equal income distribution leads to deeper and more costly recessions. Overall, the length of the duration of contraction when going into a recession is longer and its amplitude deeper for countries with a less equal distribution of income.

But by how much? The authors use the World Bank’s GINI score and conclude that a one point increase in GINI leads to a 0.26 percent increase in the depth of a recession and a 0.2 percent increase in cumulative losses over the course of a recession. In other words, the effect is noticeable but not huge.

To make this a little more concrete, here’s a chart that shows how the authors would expect recessions in various countries to compare to a recession in Denmark, which has a very low GINI score. For the United States, other things equal, we should expect that our recessions would be about 3 percent deeper and produce 2 percent more losses than a recession in Denmark.

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily crazy—Mother Jones' journalism is driven by one simple question: Will America will move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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