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Inflation and Income Inequality

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  • James P Walsh
  • Jiangyan Yu
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    Abstract

    There is an extensive literature noting that high inflation can add to income inequality, and a parallel literature assessing the effect of rising food prices on the poor. This paper attempts to combine these strands by dividing inflation into food and nonfood inflation and assessing whether food inflation affects income inequality differently from nonfood inflation. In an international sample and a sample of Chinese provinces, nonfood inflation exacerbates income inequality while the role of food inflation is more mixed. In a sample of Indian states broken down into urban and rural areas, we find that nonfood inflation adds to income inequality in both areas, while food inflation has a neutral to positive effect on income inequality in rural areas, providing support for the theory that rural wages may respond elastically to food prices.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/147.

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    Length: 22
    Date of creation: 01 Jun 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/147

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    Related research

    Keywords: Commodity prices; Income distribution; Agricultural commodities; Producer prices; inflation; monetary fund; central bank; monetary policy; high inflation; price level; measure of inflation; rising inflation; effect of inflation;

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    References

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    1. Ferreira, Francisco H. G. & Leite, Phillippe G. & Litchfield, Julie A., 2006. "The rise and fall of Brazilian inequality, 1981-2004," Policy Research Working Paper Series 3867, The World Bank.
    2. Christina D. Romer & David H. Romer, 1998. "Monetary Policy and the Well-Being of the Poor," NBER Working Papers 6793, National Bureau of Economic Research, Inc.
    3. Quentin Wodon & Hassan Zaman, 2010. "Higher Food Prices in Sub-Saharan Africa: Poverty Impact and Policy Responses," World Bank Research Observer, World Bank Group, vol. 25(1), pages 157-176, February.
    4. Wodon, Quentin & Tsimpo, Clarence & Backiny-Yetna, Prospere & Joseph, George & Adoho, Franck & Coulombe, Harold, 2008. "Potential impact of higher food prices on poverty : summary estimates for a dozen west and central African countries," Policy Research Working Paper Series 4745, The World Bank.
    5. Rashid, Shahidur, 2002. "Dynamics of agricultural wage and rice price in Bangladesh," MSSD discussion papers 44, International Food Policy Research Institute (IFPRI).
    6. Jim Dolmas & Gregory W. Huffman & Mark A. Wynne, 2000. "Inequality, inflation, and central bank independence," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 271-287, February.
    7. Gaurav Datt & Martin Ravallion, 1998. "Farm productivity and rural poverty in India," Journal of Development Studies, Taylor & Francis Journals, vol. 34(4), pages 62-85.
    8. Jonathan S. Skinner, 1987. "Taxation and Output Growth: Evidence from African Countries," NBER Working Papers 2335, National Bureau of Economic Research, Inc.
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