Zooming in: From Aggregate Volatility to Income Distribution

38 Pages Posted: 20 Apr 2016

See all articles by César Calderón

César Calderón

World Bank

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business

Date Written: April 1, 2009

Abstract

In contrast with a growing literature on the drivers of aggregate volatility in developing countries, its consequences in terms of individual incomes have received less attention. This paper looks at the impact of cyclical output fluctuations and extreme output events (crises) on unemployment, poverty, and inequality. The authors find robust evidence that aggregate volatility has a regressive, asymmetric, and non linear impact, as reflected in the strong influence of extreme output drops. The findings show that, in addition to the mitigating role of personal wealth, public expenditure and labor protection exert a similar benign effect. These findings are in line with the income substitutions view of social safety nets, and cast a new light on the value of social programs and labor market regulation in crisis prone developing countries.

Keywords: Economic Conditions and Volatility, Emerging Markets, Economic Theory & Research, Inequality

Suggested Citation

Calderon, Cesar A. and Levy-Yeyati, Eduardo Levy, Zooming in: From Aggregate Volatility to Income Distribution (April 1, 2009). World Bank Policy Research Working Paper No. 4895, Available at SSRN: https://ssrn.com/abstract=1410480

Cesar A. Calderon (Contact Author)

World Bank ( email )

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HOME PAGE: http://www.worldbank.org/laceconomist

Eduardo Levy Levy-Yeyati

Universidad Torcuato Di Tella - School of Business ( email )

Saenz Valiente 1010
C1428BIJ Buenos Aires
Argentina

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