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Inequality, inflation, and central bank independence

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  • Jim Dolmas
  • Gregory W. Huffman
  • Mark A. Wynne

Abstract

What can account for the different contemporaneous inflation experiences of various countries, and of the same country over time? We present an analysis of the determination of inflation from a political economy perspective. We document a positive correlation between income inequality and inflation and then present a theory of the determination of inflation outcomes in democratic societies that illustrates how greater inequality leads to greater inflation, owing to a desire by voters for wealth redistribution. We conclude by showing that democracies with more independent central banks tend to have better inflation outcomes for a given degree of inequality.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 33 (2000)
Issue (Month): 1 (February)
Pages: 271-287

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Handle: RePEc:cje:issued:v:33:y:2000:i:1:p:271-287

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  1. Beetsma, R.M.W.J. & Ploeg, F. van der, 1992. "Does inequality cause inflation?: The political economy of inflation, taxation and government debt," Discussion Paper 1992-30, Tilburg University, Center for Economic Research.
  2. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
  3. Gregory W. Huffman, 1997. "An Equilibrium Analysis of Central Bank Independence and Inflation," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 943-58, November.
  4. Cukierman, Alex & Kalaitzidakis, Pantelis & Summers, Lawrence H. & Webb, Steven B., 1993. "Central bank independence, growth, investment, and real rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 95-140, December.
  5. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
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