Poverty, Depression, and Anxiety: Causal Evidence and Mechanisms

Why are people who live in poverty disproportionately affected by mental illness? We review the interdisciplinary evidence of the bidirectional 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 antipoverty 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.