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The Relationship between the Inflation Rate and Inequality across U.S. States: A Semiparametric Approach

Author

Listed:
  • Mehmet Balcilar

    (Eastern Mediterranean University)

  • Shinhye Chang

    (University of Pretoria)

  • Rangan Gupta

    (University of Pretoria)

  • Stephen M. Miller

    (University of Nevada, Las Vegas)

Abstract

This paper uses a cross-state panel for the United States over the 1976 to 2007 period to assess the relationship between income inequality and the inflation rate. Employing a semiparametric instrument variable (IV) estimator, we find that the relationship depends on the level of the inflation rate. A positive relationship occurs only if the states exceed a threshold level of inflation rate. Below this value, inflation rate lowers income inequality. The results suggest that a nonlinear relationship exists between income inequality and the inflation rate.

Suggested Citation

  • Mehmet Balcilar & Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2017. "The Relationship between the Inflation Rate and Inequality across U.S. States: A Semiparametric Approach," Working papers 2017-14, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2017-14
    Note: Stephen Miller is the corresponding author
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    2. Berisha, Edmond & Gupta, Rangan & Meszaros, John, 2020. "The impact of macroeconomic factors on income inequality: Evidence from the BRICS," Economic Modelling, Elsevier, vol. 91(C), pages 559-567.
    3. Edmond Berisha & Orkideh Gharehgozli & Rangan Gupta, 2022. "Inflation-Inequality Puzzle: Is it Still Apparent?," Working Papers 202206, University of Pretoria, Department of Economics.
    4. Edmond Berisha & Ram Sewak Dubey & Orkideh Gharehgozli, 2023. "Inflation and income inequality: does the level of income inequality matter?," Applied Economics, Taylor & Francis Journals, vol. 55(37), pages 4319-4330, August.
    5. Zheng, Zhijie & Wan, Xi & Huang, Chien-Yu, 2023. "Inflation and income inequality in a Schumpeterian economy with heterogeneous wealth and skills," Economic Modelling, Elsevier, vol. 121(C).
    6. Manoel Bittencourt & Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "Does Financial Development Affect Income Inequality in the U.S. States? A Panel Data Analysis," Working Papers 201803, University of Pretoria, Department of Economics.
    7. Bagchi, Sutirtha & Curran, Michael & Fagerstrom, Matthew J., 2019. "Monetary growth and wealth inequality," Economics Letters, Elsevier, vol. 182(C), pages 23-25.
    8. Kim, Dong-Hyeon & Lin, Shu-Chin, 2023. "Income inequality, inflation and financial development," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 468-487.
    9. Zheng, Zhijie & Huang, Chien-Yu & Wan, Xi, 2020. "Human Capital and Income Inequality in a Monetary Schumpeterian Growth Model," MPRA Paper 101912, University Library of Munich, Germany.
    10. Bettarelli, Luca & Estefania-Flores, Julia & Furceri, Davide & Loungani, Prakash & Pizzuto, Pietro, 2023. "Energy inflation and consumption inequality," Energy Economics, Elsevier, vol. 124(C).
    11. Sima Siami‐Namini & Conrad Lyford & A. Alexandre Trindade, 2020. "The Effects of Monetary Policy Shocks on Income Inequality Across U.S. States," Economic Papers, The Economic Society of Australia, vol. 39(3), pages 204-221, September.
    12. Bittencourt, Manoel & Chang, Shinhye & Gupta, Rangan & Miller, Stephen M., 2019. "Does financial development affect income inequality in the U.S. States?," Journal of Policy Modeling, Elsevier, vol. 41(6), pages 1043-1056.
    13. Edmond Berisha & Rangan Gupta & John Meszaros, 2019. "Fisher Variables and Income Inequality in the BRICS," Working Papers 201933, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Income inequality; Inflation rate; Semiparametric instrumental variable estimator;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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