The Effect of the 1918 Influenza Pandemic on Income Inequality: Evidence from Italy

We estimate the effect of the 1918 influenza pandemic on income inequality in Italian municipalities. Our identification strategy exploits the exogenous diffusion of influenza across municipalities due to the presence of infected soldiers on leave from World War I operations. The measures of income inequality come from newly digitized historical administrative records on taxpayer incomes. We show that in the short and medium run, income inequality is higher in municipalities more afflicted by the pandemic. The effect is mostly explained by an increase in the share of income held by the rich to the detriment of the other strata of the population.