COVID-19 Crisis and the Association Between Inequality and Economic Growth

Abstract

In this paper, we investigate the macroeconomic response to exogenous shocks, namely the COVID-19. We conjecture that the sensitivity of an economic system to an exogenous shock is endogenous on its characteristics and ability to counter a shock. We use the COVID-19 crisis as an exogenous shock, and we argue that a higher income inequality is likely to lead to a greater negative impact of an exogenous shock on economic growth. We validate our expectations using different inequality indexes. In further robustness tests, we confirm our conclusions using different proxies for economic conditions. JEL Codes: A10, I14, I15