Poverty, Inequality, and the International Monetary Fund: How Austerity Hurts the Poor and Widens Inequality

Stubbs Thomas (), Kentikelenis Alexander, Ray Rebecca and Gallagher Kevin P.
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Stubbs Thomas: Royal Holloway, University of London, Egham, UK
Kentikelenis Alexander: Bocconi University, Milan, Italy
Ray Rebecca: Global Development Policy Center, Pardee School of Global Studies, Boston University, Boston, USA
Gallagher Kevin P.: Global Development Policy Center, Pardee School of Global Studies, Boston University, Boston, USA

Journal of Globalization and Development, 2022, vol. 13, issue 1, 61-89

Abstract: Among the drivers of socio-economic development, this article focuses on an important yet insufficiently understood international-level determinant: the spread of austerity policies to the developing world by the International Monetary Fund (IMF). In offering loans to developing countries in exchange for policy reforms, the IMF typically sets the fiscal parameters within which development occurs. Using an original dataset of IMF-mandated austerity targets, we examine how policy reforms prescribed in IMF programs affect inequality and poverty. Our empirical analyses span a panel of up to 79 countries for the period 2002–2018. Using instrumentation techniques, we control for the possibility that these relationships are driven by the IMF imposing harsher austerity measures precisely in countries with more problematic economies. Our findings show that stricter austerity is associated with greater income inequality for up to two years, and that this effect is driven by concentrating income to the top 10% of earners while all other deciles lose out. We also find that stricter austerity is associated with higher poverty headcounts and poverty gaps. Taken together, our findings suggest that the IMF neglects the multiple ways its own policy advice contributed to social inequity in the developing world.

Keywords: poverty; inequality; International Monetary Fund; austerity (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/jgd-2021-0018

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Journal of Globalization and Development is currently edited by Joseph E. Stiglitz, Kevin Gallagher, Jeronim Capaldo, Arjun Jayadev, José Antonio Ocampo and Dani Rodrik

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