The link between economic fluctuations and inequality has received
increasing attention in policy debates since the global financial
crisis. But evidence about the existence of such a relationship,
particularly in developing countries, remains scarce. We use a
cross-country approach to investigate how inequality varies during
periods of strong economic growth (“good times”) and declines (“bad
times”) between 1981 and 2014. Our results suggest that inequality was
sensitive to growth conditions in developing countries over this
period, falling in “good times” and rising in “bad times”.
Importantly, results highlight job creation as an important channel
through which growth conditions affect inequality. Additionally, our
findings imply a greater role for robust social safety nets and
countercyclical policies in mitigating increases in inequality in “bad times”.