"Policy and inequality response to uncertainty shocks : A multi-country analysis"

Abstract:This paper investigates the effects of uncertainty shocks on public debt and inequality across 25 developed and emerging economies over an average period of 30 years, using a structural vector autoregression (SVAR) framework. While uncertainty shocks are generally recessionary, their macroeconomic and distributional effects vary significantly across income group. In emerging markets, shocks propagate mainly through demand-driven channels, triggering deeper and more persistent declines in output, consumption, and investment compared to advanced economies. Public debt increases in both groups, but more sharply and durably in high-income countries, reflecting stronger fiscal and monetary responses. Distributional effects diverge : income inequality tends to fall in advanced economies but rises in emerging markets, particularly among low-income groups. In advanced economies, wealth inequality increases as asset recoveries benefit the top. These asymmetries are closely linked to differences in public generosity—proxied by per capita transfers and subsidies—highlighting the role of fiscal capacity in shaping the macroeconomic and social consequences of uncertainty.