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 next step toward the design of effective policies is to better understand the mechanisms underlying these causal effects.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.