IMF Programs, Democracy, and Income Inequality By Rachel Azafrani and Leo Zucker

The Question “By bringing in the IMF, governments gain political leverage - via conditionality - to push through unpopular policies. For certain constituencies, these policies dampen the effects of bad economic performance by redistributing income. But IMF programs doubly hurt others who are less well off: They lower growth and exacerbate income inequality.” - Vreeland, 2003 “But IMF programs doubly hurt others who are less well off: They lower growth and exacerbate income inequality.” - Vreeland, 2003

The Question: Continued Does the regime type of a country matter when considering the effects of an IMF program on income inequality?

Hypothesis IMF conditionality under a program In autocracies, income inequality (in many cases) is already bad Governments lack incentive for social programs Everyone is worse off, gap similar post-program In democracies, there is more for governments to cut (social programs, health, education, etc.) Everyone may be worse off, but the inequality gap widened post-program

Hypothesis: An Illustration Does the observed IMF inequality effect depend on regime type? * Wider curve indicates more inequality

Methodology Dependent Variable: Standardized Gini coefficient (measure of income inequality) Independent Variables: Democracy, IMF Program Participation Using an interaction term between the two for our hypothesis Time series regressions

What We’re Finding... (Very) preliminary support of our hypothesis Democracy Autocracy

What’s Next Controls and other effects in each regime type Effects on social spending (education, health) Other measures of inequality Relative redistribution of wealth Endogeneity

What’s Next: Continued Different types of programs Stand-by Arrangements (SBA) Common & Conditional Flexible Credit Line (FCL) & Precautionary and Liquidity Line (PLL) Generally not conditional Rapid financing New programs are beyond our data

Questions? Thank you!