Poverty, Depression, and Anxiety: Causal Evidence and Mechanisms

Abstract

Why are people living in poverty disproportionately affected by mental illness? We review the interdisciplinary evidence of the bi-directional causal relationship between poverty and common mental illnesses – depression and anxiety – and the underlying mechanisms. Research shows that mental illness reduces employment and therefore income and that psychological interventions generate economic gains. Similarly, negative economic shocks cause mental illness, and anti-poverty programs, such as cash transfers, improve mental health. A crucial step toward the design of effective policies is to better understand the mechanisms underlying these causal effects.