# **1. Introduction**

The impact of the global coronavirus pandemic (COVID-19) was felt by the entire world, but not everyone was affected equally. The pandemic led to the largest global economic crisis since the Great Depression, with 95 percent of countries experiencing a contraction in output in 2020. It is estimated that the pandemic and the associated economic recession have led to an additional 97 million people in extreme poverty in 2020, resulting in the first increase in global poverty in nearly a quarter century (World Bank, 2020). This puts the Sustainable Development Goal of reducing global extreme poverty to 3 percent further out of reach. The actual impact of the pandemic on poverty may eventually be considerably more severe than this early estimate since it assumes that the pandemic has not increased inequality. For example, even a small increase (by one percentage point) in the Gini index of inequality<sup>2</sup> in every country could have increased the global poverty impact of the pandemic by around 35 percent in 2020 (Lakner et al, forthcoming).

As the pandemic is still unfolding, the degree to which its effects are dis-equalizing will not be known for some time, and they will also depend on the nature of inequalities that are being considered. For instance, Deaton (2021) shows that economic contractions, measured in terms of GDP per capita, were larger in richer countries, resulting in a reduction of unweighted between country inequality in 2020, while at the same time, in an increase in population-weighted inequality. Ferreira et al. (2021) similarly show that the mortality burden of COVID-19, in terms of the life years lost to the pandemic, are positively correlated with GDP per capita, with richer countries bearing a larger share of mortality burden. At the same time, emerging evidence from advanced economies shows that within those countries, households with lower socio-economic status and those with more precarious jobs have been more affected, in terms of job and income losses, by the restrictions aimed at containing the COVID-19 pandemic (Adams-Prassl et al., 2020; Chetty et al., 2020; Crossley et al., 2021).

Even when pandemic restrictions are disproportionately affecting jobs and incomes in low-income households, the impact on income inequality, at least in the short term, will also depend on the size and the effectiveness of the government response measures. Clark et al. (2021), based on data from five European countries, find that disposable income inequality fell between January and September of 2020, accounting for the government mitigation measures, but would have increased had those measures not been put in place. Finally, even when government response programs can mitigate short-term inequalities related to income losses, the COVID-19 pandemic can still have long-term effects related to differential losses in learning and human capital, or long-term unemployment effects.

Against this background, this paper aims to contribute to our understanding of the inequality effects of the COVID-19 pandemic by (i) extending the evidence base on the inequality impacts of the pandemic to emerging markets and developing economies (EMDEs); (ii) providing a first account of the impact of the pandemic on inequality for a large set of EMDEs; and (iii) analyzing the distributional patterns of early recovery related to the relaxation of the policy stringency measures. To address these questions, the paper pieces together empirical evidence on impact of the pandemic on inequality in EMDEs from existing pieces of research – updated in some cases with more recent data as they become available – along with evidence from past crises. To estimate the distributional impacts of COVID-19, the paper primarily draws on novel

> 2 This is of similar magnitude to the Great Recession increase in disposable income inequality in EU countries such as Greece, Italy, Portugal and Spain between 2010 and 2014, and considerably smaller than in countries like Bulgaria (2.2pp), Estonia (4.3pp), Cyprus (4.7pp), or Hungary (4.5pp) during the same period. (Data source: <u>http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do)</u>

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