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

2. Literature: IMF Participation...
...increases poverty (Handa & King 1997; Oberdabernig )
...adversely affects income inequality (Pastor 1987; Garuda 2000; Vreeland 2002, 2003)
Talking about POOR countries

3. Question Do the effects of IMF programs depend on regime type?
Nooruddin & Simmons (2006): Democracies begin to look more like autocracies under IMF programs

4. Hypothesis
H1: The effect of participation in IMF programs on income inequality depends on regime type.
H2: As a result of program participation, democracies will experience greater growth (or less reduction) in income inequality than autocracies will.

5. Convention: Democracies help the poor
In democracies, large winning coalitions:
More social spending; appeal to median voter
Mitigate conditionality;
don’t cut social spending
IMF Program
Decrease income inequality
Government more redistributive. They need the taxes, they are beholden to their constituents. Cut other parts of their budget, possibly increase social spending

6. 2) Our Hypothesis: Democracies increase inequality
Nooruddin & Simmons (2006) hypothesis:
When money is scarce, everyone fights for a piece of the pie
Interest groups win
Poor face a collective action problem
Social spending cuts
IMF Program
Increase income inequality
pro-poor policies provide diffuse benefits and costs
Further constraints because we have POOR countries in our sample

7. What of autocracies?

8. 1) Convention: Autocracies hurt the poor
In autocracies, small winning coalitions:
Less social spending; polarized distribution of wealth
Cut social spending under conditionality
IMF Program
Increase income inequality
Also spend on elite constituents

9. 2) Autocracies decrease inequality
Social spending benefits the upper and middle classes
Conditionality decreases income of the upper and middle classes
IMF Program
Decrease income inequality
Subsidy to middle and upper classes - net Gini (post tax, post transfer)
Huge gap, it closes

10. Methodology Dependent Variable: Standardized Gini coefficient
Independent Variables: Democracy, IMF Program Participation, Different Program Types
Interaction term
Kuznets (1955) determinants of income inequality
Time series regressions
Fixed-effects
Up to 5 year lag
Interaction term gauges the effect of IMF participation on income inequality (***Dramatic pause****) conditioned on regime type.

11. Descriptive Data
Negligible difference.

12. Results Focus on the marginal effect Standard errors in parentheses
*** p<0.01, ** p<0.05, * p<0.1
Focus on the marginal effect

13. Marginal Effects Democracies: -0.457 insignificant
Autocracies: *** reduce income inequality
℘ Holds across all lags up to 3 years

14. Marginal Effects: Continued
Insignificant from 0, do not appear in this graph

15. Conclusions No significant effect for democracies
Autocracies reduce income inequality
Lowering income of the upper classes
Same effect and significance in Extended Structural Adjustment Facilities (ESAFs): robust
Democracies have greatest leeway in ESAFs because of lower conditionality - mention program implementation failure
Logic for autocracies?
Any reduction in the income in the upper classes of these poor autocracies will have a significant effect on reducing income inequality

16. Questions
Thank you!