Editor’s note: This article was originally published in 2021 and revisits an academic study by the author published in 2015. It incorporates updated empirical evidence through 2020. This article examines the relationship between macroeconomic stability and poverty in Argentina, drawing on long-term empirical evidence.
The Underlying Debate
For decades, debates about macroeconomic stability and poverty in Argentina have revolved around a central question. Is increasing social public spending sufficient to reduce poverty, or does macroeconomic stability play a more decisive role? In a country marked by recurrent economic crises, this tension between stability, inflation, and redistribution repeatedly returns to the center of public discussion.
In 2015, I published an article titled Macroeconomic Stability, Consolidated Social Public Spending, and Their Effects on Poverty, which sought to empirically examine these two policy tools. Given Argentina’s current economic and social context, the implications of that research are just as relevant today as they were then.
Assumptions and the Research Question
The analysis’s starting point was straightforward, though empirically demanding. On the one hand, social public spending is assumed to reduce poverty. On the other hand, poor macroeconomic management reflected in high inflation, fiscal imbalances, or currency crises tends to increase it.
The real challenge, however, was determining which effect dominates when both operate simultaneously.
Measuring Macroeconomic Stability and Poverty in Argentina
To assess macroeconomic performance, the study used the Economic Performance Index (EPI) developed by the International Monetary Fund (Khramov and Lee, 2013). This index synthesizes key macroeconomic variables and allows for year-to-year evaluations of whether an economy becomes more or less stable.
The EPI was compared with changes in Argentina’s poverty rate and with consolidated social public spending, under the assumption that the latter functions as a poverty-reducing force.
Updating the Empirical Evidence
Five years after the original publication, it became necessary to update the dataset through 2020 to determine whether the observed trend persisted.
The expanded database spans 41 years, from 1980 to 2020, enabling identification of long-term patterns in the relationship between macroeconomic instability and poverty in Argentina.
Main Findings
The results are consistent and difficult to ignore.
During this period, poverty increased in 22 years, while the EPI worsened in 22 years as well. In 17 of those years, both dynamics coincided: macroeconomic conditions deteriorated, and poverty rose simultaneously.
This implies:
- A 77% probability that poverty increases when macroeconomic performance worsens relative to the previous year.
- A 73% probability that poverty moves in the opposite direction of macroeconomic stability.
Both in the original dataset and in the extended data through 2020, the conclusion is the same: the effect of macroeconomic instability outweighs the poverty-reducing effect of social public spending.
In other words, the negative impact of persistent macroeconomic imbalances tends, on average, to exceed the positive impact of spending aimed at reducing poverty.
An Uncomfortable Conclusion
These findings lead to an uncomfortable but necessary conclusion. Public spending may not only be insufficient to reduce poverty, but under certain conditions, it can become part of the problem.
When its financing generates sustained macroeconomic imbalances, the resulting costs fall disproportionately on the most vulnerable sectors. In such cases, the intended redistributive effects are neutralized, or even reversed.
Historical Evidence and Stability
Historical evidence reinforces this interpretation. Periods with the most significant reductions in poverty consistently coincide with years of macroeconomic stability.
These findings suggest that stability is not merely a complement to social spending. Instead, it is a fundamental condition for any redistributive policy to produce lasting results.
Implications for Public Policy
Argentina’s experience with macroeconomic stability and poverty shows that without sustained macroeconomic order, even well-designed social policies struggle to deliver lasting reductions in poverty.
These results should not be interpreted as an argument against public social spending. Instead, they highlight its limits when used as a substitute for macroeconomic stability.
In this sense, macroeconomic stability emerges as a more effective tool than expanded public spending for achieving durable poverty reduction, not because spending lacks importance, but because its impact is diluted in an environment of recurring economic crises that once again punish those it seeks to protect.
Argentina Currency flickr photo by theglobalpanorama shared under a Creative Commons (BY-SA) license
Recommended Reading
To further explore the institutional, economic, and policy dynamics shaping poverty, inflation, and macroeconomic stability in Argentina, the following articles may be useful:
- Economic History of Argentina — An overview of Argentina’s long-term economic trajectory, highlighting recurring patterns of growth, crisis, and institutional fragility that continue to shape contemporary policy debates.
- Why Is Inflation So High in Argentina? — An analysis of the structural and policy-driven causes of persistent inflation, examining how monetary instability erodes purchasing power and disproportionately affects lower-income households.
- Argentina: The Country with the Worst Economic Management of the Pandemic — A case study of how macroeconomic mismanagement during the COVID-19 crisis intensified fiscal pressures, inflationary dynamics, and social vulnerability.
References
Khramov, M. V., & Lee, M. J. R. (2013). The Economic Performance Index (EPI): an intuitive indicator for assessing a country’s economic performance dynamics in an historical perspective (No. 13-214). International Monetary Fund. https://www.imf.org/external/pubs/ft/wp/2013/wp13214.pdf
Marcarián, L. (2015). La estabilidad macroeconómica, el gasto público social consolidado y sus efectos en la pobreza año 2015. Actualidad Económica, 25(87), 9-35. https://oaji.net/articles/2016/3199-1461288054.pdf