Economic Volatility and Inequality: Do Aid and Remittances Matter?

We examine the adverse impact of macroeconomic volatility on inequality and the role that aid and remittances could play in mitigating this effect. Using a panel of 142 countries over 1973-2012, we find that macroeconomic volatility widens income equality with the poorest being most exposed. However, while aid and remittances do not seem to have a direct impact on inequality, we both find evidence that aid helps to mitigate the negative effects of volatility on income distribution and has a stabilizing impact on income while remittances do not.