Imf Standby Agreements and Inequality: the Role of Informality

Abstract

We use a relatively large annual (unbalanced) cross-country panel data set that includes the Gini index and the estimated household income inequality as the two relevant inequality metrics and covers the period from 1950 to 2018 for 159 countries, and we investigate the response of two inequality metrics to International Monetary Fund (IMF) standby programs. Our empirical analysis indicates that in countries where the informal sector size (as % GDP) is relatively larger, the extent of income inequality increases after IMF standby agreements. We also show that the opposite is true when the informal sector size is small, that is, inequality declines after these IMF programs.