Economic crises and Inequality

2011 Occasional Paper
By Atkinson, AB; Morelli, Salvatore

Sustainability for a society means long-term viability, but also the ability to cope with economic crises and disasters. Just as with natural disasters, we can minimize the chance of them occurring and set in place policies to protect the world’s citizens against their consequences. This paper is concerned with the impact of economic crises on the inequality of resources and with the impact of inequality on the probability of economic crises. Is it the poor who bear the brunt? Or are crises followed by a reversal of previous boom in top incomes? Reversing the question, was the 2007 financial crisis the result of prior increases in inequality? Have previous periods of high inequality led to crises? What can we learn from previous crises – such as those in Nordic countries and the Asian financial crisis? How far can public policy moderate the impact of economic crises?