Poverty and income inequality

Roberto Iacono, Elisa Palagi, 27 February 2021

A crucial element in the study of wealth inequality is the difference between the rate of return and the growth rate of income. However, the focus on these measures at the aggregate level belies important heterogeneities along the wealth distribution. This column uses rich micro-data from Norway to show that wealthy households enjoy higher rates of return relative to growth, while the opposite is true for poorer household and the lower-middle-income class. It discusses policy implications of these findings for capital and wealth taxation in order to curb the rise of inequality. 

Alison Andrew, Orazio Attanasio, Britta Augsburg, Jere Behrman, Monimalika Day, Pamela Jervis, Costas Meghir, Angus Phimister, 17 February 2021

Despite the importance of female networks, many women worldwide face substantial barriers to creating and maintaining social connections. This column examines new mothers’ social networks in rural Odisha, an eastern state in India, and finds that young mothers tend to be extremely isolated, with potentially important consequences for mental and physical wellbeing, access to services, and maternal empowerment. The networks that exist display strong negative socioeconomic status gradients, with dominant-caste and wealthier women being much more isolated than their lower-status peers.

Alina Kristin Bartscher, Moritz Kuhn, Moritz Schularick, Paul Wachtel, 10 February 2021

Racial income and wealth gaps in the US are large and persistent. Central bankers and politicians have recently suggested that monetary policy may be used to reduce these inequalities. This column investigates the distributional effects of monetary policy in a unified framework, linking monetary policy shocks both to earnings and wealth differentials between black and white households. Over multi-year horizons, it finds that while accommodative monetary policy tends to reduce racial unemployment and thus earnings differentials, it exacerbates racial wealth differentials, which implies an important trade-off for policymakers.

Mariacristina De Nardi, Giulio Fella, Gonzalo Paz-Pardo, 07 February 2021

The optimal size and structure of government benefit programmes crucially depend on households’ income risk and their ability to self-insure against it. This column demonstrates that in the UK, earning dynamics, such as income risk and shock persistence, differ substantially depending on age and position in the income distribution. Taking these dynamics into account when evaluating benefit policies is of crucial importance, as it dramatically changes the estimated welfare improvements. When the dynamics are incorporated, the 2016 reform of the UK’s benefit system is found to have been welfare-improving on average. 

Catarina Midões, Mateo Seré, 06 February 2021

The COVID-19 outbreak has induced dramatic economic shocks in European countries. Using ECB survey data, this column examines households’ financial vulnerability to an income shock in seven European countries and assesses the degree of protection awarded to employees by COVID-19 employment protection schemes. It finds that 18.2 million individuals, or 7% of the population of the countries analysed, cannot cover one month of food and utilities by resorting to their deposits, pensions, and public transfers. Importantly, there is a significant drop in the number of vulnerable with COVID-19 unemployment benefits. Rent and mortgage suspensions are more effective in some countries than in others.

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