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

“But IMF programs doubly hurt others who are less well off: They lower growth and exacerbate income inequality.” - Vreeland, 2003 ●“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 The Question

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 o Governments lack incentive for social programs post-program Everyone is worse off, gap similar ●In democracies, there is more for governments to cut (social programs, health, education, etc.) Everyone may be worse off, but the inequality gap widened

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

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

●(Very) preliminary support of our hypothesis What We’re Finding... DemocracyAutocracy

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

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

Questions? Thank you!