Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

is not a perfect fit, there seems to be a clear negative correlation between the
evolution of GDP and inequality indicators during the episodes of crisis and recovery.
This is clearly visible during the crises of episodes 3 and 5, and the recovery of
episode 6.
Understanding and accounting for crises is relevant, first and foremost, because of
their large negative effect on household welfare, which has been documented
elsewhere. 19 In terms of their effect on inequality, the following paragraphs
concentrate on the mechanisms determining the differential impact of crises along the
income distribution, and on the channels through which they can have a permanent
effect on its shape.
From the macroeconomy-distribution perspective, the two largest crises (1989-1991
and 2001-2002) represent the most interesting episodes over the period, since they
present unusually large falls in GDP and simultaneously large distributional
impacts. 20 Under these two large crises, the evolution of poverty and inequality were
dominated by the combination of falling output and sudden increases in prices,
although the inflationary processes were fundamentally different in nature during both
crises. 21
Given the fiscal origin of most high inflation and hyperinflation bouts (Heymann and
Leijonhufvud, 1995), it is not surprising that the literature concentrates on the
differential incidence of the inflation tax. 22 Ahumada et al. (1993, 2000) have
quantified the distributional effects of inflation in Argentina from a tax-incidence
perspective. Recurring to similar methodologies, both studies estimate monetary
demand functions, aggregate inflation tax and seigniorage collection, and a re-weight
the consumer price index by quintile of the income distribution based on the 1987
19 See for instance the discussion for Latin America and the Caribbean in Lustig (2000), and the
comparative discussion of the impact of financial crises in the region and South-East Asia in Fallon and
Lucas (2002).
20 The recession preceding the Austral stabilization plan in 1985 was not associated to large increases in
inequality. Also, as stated above, the lasting effects of the Tequila crises cannot be disentangled from
those of the host of reforms taking place simultaneously.
21 The devaluation in early 2002 implied a jump in the price level to accommodate the new relative
prices of the economy. The inflation in the 2003-2007 period, although increasing, was moderate when
compared to the hyperinflations of 1989 and 1991. It was mostly due to the expansive monetary policy,
the growing levels of employment and to the adjustment of the real exchange rate to its equilibrium
level after the devaluation’s overshooting in a context of a dirty floating exchange rate regime.
Contrary to the experience of the 1980s, government financing through the inflationary tax did not
seem to be a major force behind the changes in the price index.
22 Inflation constitutes by definition a proportional tax on nominal balances, but its effect on the income
distribution is neutral only if all households face the same inflation rate, if all households have the
same income elasticity in their demand for money, or if they all have access to the same “inflationprotection”
technologies. Theoretical models have been developed by Bulir (1998) and Sturzenegger
(1997), among others.