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Inflation, Inequality, and Social Conflict

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  • Christopher W. Crowe

Abstract

This paper presents and then tests a political economy model to analyze the observed positive relationship between income inequality and inflation. The model''s key features are unequal access to both inflation-hedging opportunities and the political process. The model predicts that inequality and ''elite bias'' in the political system interact to create incentives for inflation. The paper''s empirical section focuses on this predicted interaction effect. The identification strategy involves using the end of the Cold War as a source of exogenous variation in the political environment. It finds robust evidence in support of the model.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/158.

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Length: 37
Date of creation: 01 Jun 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/158

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Keywords: Income distribution; Tax rates; inflation; inflation tax; inflation tax rate; monetary fund; average inflation; monetary policy; monetary economics; high inflation; inflation aversion; low inflation; monetary authorities; central bank; macroeconomic performance; measure of inflation; money balances; demand for money; inflation performance; rational expectations; real wages; money demand; price level;

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References

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  1. Sebastian Edwards & Guido Tabellini, 1991. "Political Instability, Political Weakness and Inflation: An Empirical Analysis," NBER Working Papers 3721, National Bureau of Economic Research, Inc.
  2. Christina D. Romer & David H. Romer, 1999. "Monetary policy and the well-being of the poor," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 21-49.
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Citations

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Cited by:
  1. Carsten Hefeker, 2009. "Taxation, Corruption and the Exchange Rate Regime," CESifo Working Paper Series 2561, CESifo Group Munich.
  2. Bittencourt, Manoel, 2011. "Inflation and financial development: Evidence from Brazil," Economic Modelling, Elsevier, vol. 28(1), pages 91-99.
  3. Manoel Bittencourt, 2007. "Financial Development and Inequality: Brazil 1985-1994," Ibero America Institute for Econ. Research (IAI) Discussion Papers 164, Ibero-America Institute for Economic Research.
  4. Manoel Bittencourt, 2007. "Macroeconomic Performance and Inequality: Brazil 1983-1994," Ibero America Institute for Econ. Research (IAI) Discussion Papers 163, Ibero-America Institute for Economic Research.
  5. Olmo Silva, 2004. "Entrepreneurship: Can the Jack-of-All-Trades Attitude be Aquired?," CEP Discussion Papers dp0665, Centre for Economic Performance, LSE.
  6. Menji, Sisay, 2008. "Determinants of Recent Inflation in Ethiopia," MPRA Paper 29668, University Library of Munich, Germany.
  7. Gomes, Orlando, 2006. "Can social interaction contribute to explain business cycles?," MPRA Paper 2848, University Library of Munich, Germany.
  8. Bittencourt, Manoel, 2010. "Democracy, Populism and Hyperinflation[s]: Evidence from Latin America," Proceedings of the German Development Economics Conference, Hannover 2010 47, Verein für Socialpolitik, Research Committee Development Economics.
  9. Eleftherios Thalassinos & Erginbay Ugurlu & Yusuf Muratoglu, 2012. "Income Inequality and Inflation in the EU," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 127-140.

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