Evidence About the Distributional Impact of Macroeconomic Change

In this section, we review the empirical evidence about the distributional impacts of macroeconomic change, and especially recessions. The evidence is diverse, ranging from econometric analysis of the relationship between summary measures of inequality (and poverty) and macroeconomic aggregates, to studies relating changes in the macroeconomy in general with changes in the fortunes of the richest or the poorest individuals within a nation. Much of this research is based on a single country and that country is typically the USA. We also summarize some non-US case studies of distributional impacts, referring specifically to the Nordic crisis at the beginning of the 1990s, three recessions in the UK since the 1970s, and the New Zealand recession of the late 1980s. The latter is contrasted with the Irish boom from the mid-1990s to emphasize the important contribution of changes in median income to changes in relative poverty rates in times of macroeconomic change. (We do not include coverage of the Asian crisis of the 1990s as that involved countries at a different level of economic development to those that we consider in this book.) We end by reviewing the findings of some recent studies based on tax-benefit microsimulation modelling.