Impacts of COVID-19 on inequality

Authors: J. Emmerling and M. Tavoni


Key research insights

Past pandemics have led to substantial implications in many dimensions of economic and environmental sustainability. Even dating back 2000 years, researchers have found, besides the death toll, significant adverse and long-term impacts on poverty in the affected countries. With more recent available data on past pandemics in the second half of the 20th century, we estimate an increase in inequality by, on average, about 0.4 points of the Gini index (0-100), and being persistent even after five years. Similar and persistent impacts on GDP, public debt, and employment are found. In terms of emissions and energy intensity, however, we find only small reductions indicating that the changes are mostly demand-driven, not leading to energy efficiency improvements and only around one third of the emissions reductions are due to decarbonization of the energy system, mainly through switches to electricity and to some extent, increases in renewables. Applying the empirical results to COVID-19, we estimate an additional 75 million of absolute poor at the global level in 2020 (Emmerling et al., 2020). Moreover, by looking at household surveys in several developing countries in 2020, both before and after lock-downs, we are able to quantify the actual and momentary impacts on inequality. We find a large increase in monthly income inequality in most countries by up to 3 points of the Gini index. India is the exception with income inequality increasing by 22 points (consumption inequality by 7 points). Moreover, we find strong evidence that income losses are significantly higher for households with female, less educated household heads with lower pre-pandemic incomes (Dasgupta & Emmerling, 2020).

Policy implications

Altogether, absent policy changes, the outlook in terms of overall economic and environmental sustainability after the pandemic is relatively gloomy based on these results. Policies to address the current pandemic should be designed to achieve stronger, equitable, and sustainable growth. Policymakers should simultaneously aim to mitigate climate change and bolster the recovery from the COVID-19 crisis while ensuring that the most vulnerable are protected. This highlights the need for a “green” design of stimulus packages, to not only address economic and social impacts, but also to ensure medium- and long-term trends in line with an improvement in energy and emission intensity, including alleviating the costs of future climate mitigation. Moreover, strong evidence on distributive impacts on poorer households implies a further need for redistributive policies, putting further pressure on public budgets.

Figure 1: Counterfactual scenarios (solid lines), estimated impact of COVID-19 (dashed lines), and IMF/IEA WEO projections (dotted lines)

Related reports/information

References:

Dasgupta, S. & Emmerling, J. (2020) COVID-19 lockdown led to an unprecedented increase in inequality, under review.
Emmerling J., Furceri D., Libano Monteiro F., Loungani P., Ostry J., Pizzuto P., Tavoni, M. (2021) Will the Economic Impact of COVID-19 Persist? Prognosis from 21st Century Pandemics. IMF Working Paper, forthcoming.

This report is available here.

For additional information please contact:
Johannes Emmerling (johannes.emmerling@eiee.org)

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