The economics of the democratic deficit: The effect of IMF programs on inequality

Valentin Lang ()
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Valentin Lang: University of Mannheim

The Review of International Organizations, 2021, vol. 16, issue 3, No 6, 599-623

Abstract: Abstract Does the International Monetary Fund (IMF) increase inequality? To answer this question, this article introduces a new empirical strategy for determining the effects of IMF programs that exploits the heterogeneous effect of IMF liquidity on loan allocation based on a difference-in-differences logic. The results show that IMF programs increase income inequality. An analysis of decile-specific income data shows that this effect is driven by absolute income losses for the poor and not by income gains for the rich. The effect persists for up to 5 years, and is stronger for IMF programs in democracies, and when policy conditions, particularly those that demand social-spending cuts and labor-market reforms, are more extensive. These results suggest that IMF programs can constrain government responsiveness to domestic distributional preferences.

Keywords: International Monetary Fund (IMF); Inequality; F53; O19 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (23)

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DOI: 10.1007/s11558-020-09405-x

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