Title: The distributional implications of the euro area crisis: Evidence from macroeconomic adjustment in Greece and Portugal
Summary: The paper explores the distributional effects of economic crises and the resulting economic adjustments on household income in Greece and Portugal.
Authors: Misina Cato (ESM), Olga Francova (ESM), Valentin Lang (University of Mannheim)
Abstract: We study the social and distributional implications of the euro area (EA) sovereign debt crisis in countries that received external financial assistance for macroeconomic adjustment. Combining granular data from about 1 million survey interviews with households across euro area states carried out between 2004 and 2019, we show how disposable income and its components evolved across different social groups before, during and after the EA crisis and the associated adjustment programmes. Using difference-in-difference and triple-difference methods, we compare distributional outcomes in countries with large financial assistance programmes (Greece and Portugal) to euro area countries with similar pre-crisis trajectories and macroeconomic fundamentals. The results show that incomes for most social groups in these countries declined during the crisis, but income losses were not uniform and differed across groups in terms of gender, age, and income level. Overall, public transfers mitigated increases in inequality of market incomes, yet both the timing and the magnitude of changes in market income and public transfers varied across income groups. While reforms of public transfer policies in the early macroeconomic adjustment period placed a greater burden on poorer income groups than on richer ones, reforms in later stages reduced inequality by supporting poorer households, especially in the case of Greece.
Disclaimer: This Working Paper should not be reported as representing the views of the ESM. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the ESM or ESM policy. No responsibility or liability is accepted by the ESM in relation to the accuracy or completeness of the information, including any data sets, presented in this Working Paper.
Keywords: Sovereign debt crises, economic adjustment, fiscal policy, inequality
JEL codes: D31, E62, F32, F34