Mélina London*, Carolina Ulloa Suarez**

phd seminar

Mélina London*, Carolina Ulloa Suarez**

Trade credits and sudden stops*
Can fiscal rules affect income inequality? An empirical investigation for Latin America**
Co-écrit avec
Maéva Silvestrini*

IBD Salle 21

Îlot Bernard du Bois - Salle 21

5-9 boulevard Maurice Bourdet
13001 Marseille

Mardi 28 septembre 2021| 11:00 - 12:15

Kenza Elass : kenza.elass[at]univ-amu.fr
Camille Hainnaux : camille.hainnaux[at]univ-amu.fr
Daniela Horta Saenz : daniela.horta-saenz[at]univ-amu.fr
Jade Ponsard : jade.ponsard[at]univ-amu.fr


*While trade credits from suppliers to their buyers is used by many firms in normal times as a substitute to bank loans, in times of banking crisis this source of credit has been found to dry out. This paper studies the behavior of trade credits after sudden stops in net capital flows, another type of financial tightening, mostly affecting emerging markets. We study the impact of the 2015 sudden stop -when the Fed rose its interest rate for the first time in nearly a decade- on a set of emerging countries. Using an original dataset on trade credits on a monthly basis, we analyze whether suppliers in foreign countries have substituted to local financing scheme to provide credits to their buyers during the 2015 sudden stop. We find a negative effect of the sudden stop on the amount of trade credits sent towards buyers in affected markets. We show that this effect is strongly dependent on a set of country's macroeconomic characteristics as well as on the currency denomination.

**Income inequality is the source of various macroeconomic imbalances and one of most obvious expressions of Latin American disparities'. Since the early 2000s, some countries in the region have implemented fiscal rules to achieve better control over macroeconomic aggregates and cut down the economic and social costs that fiscal indiscipline causes. However, they may breed social costs over time due to the systematic bias against public investment. This paper analyses the effect of implementing fiscal rules on income inequality for Latin American countries. Using the synthetic control approach, I find evidence that implementing fiscal rules in these countries has not necessarily affected the existent efforts to bring down inequality. This result is robust to different measures of inequality. Overall, the results suggest that any economic stigma that may prevent countries from implementing fiscal rules because of unwanted side effects on inequality is unwarranted. On the contrary, I show that the type of fiscal rule and its design and implementation in each country best explain the existence (or lack thereof) of possible social costs, such as increased income inequality.