Income inequality and the cost of recessions

Abstract

This study empirically examines the relationship between the severity of recessions experienced by countries and their income distributions. The analysis is carried out for 28 higher middle- and high-income countries between 1970 and 2013. The empirical evidence derived from the changes in the Gini-index suggests that a greater degree of income inequality increases the cumulative loss of GDP inflicted by recessions. The increased cost emerges from both a longer duration and a deeper amplitude for the contractionary phase of the business cycle.