Economic sanctions and income inequality: the Russian experience in the aftermath of the Crimean crisis

Although the causal effect of economic sanctions on macroeconomic variables has been widely studied, there remains a significant research gap in understanding their causal effect on income inequality in targeted countries. This study aims to fill that gap by examining the sanctions imposed on Russia following its annexation of Crimea and assessing how these sanctions affected income inequality in the country. To this end, we construct a counterfactual scenario using the synthetic difference-in-differences method to estimate Russia's income inequality trajectory in the absence of sanctions. Comparing the actual trajectory of income inequality in Russia after the sanctions with that of synthetic Russia without sanctions, we find that income inequality in Russia declined as a consequence of sanctions. Additionally, we conduct a series of robustness tests and demonstrate that our findings are reliable. Furthermore, we observe that the share of the highest income group fell during the sanction period, while the middle-income group's share in national income rose notably, further strengthening the evidence that sanctions reduced income inequality in Russia.