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Does Inequality Cause Inflation? The Political Economy of Inflation, Taxation and Government Debt



A democratic society in which the distribution of wealth is unequal elects political parties which tend to represent the interests of the poor. The clientele of such governments favour unanticipated inflation taxes to erode the real value of debt service and redistribute income from the rich to the poor. Consequently, inequality sows the seeds for inflation. Regressions confirm the empirical predictions of the model and show a strong positive relationship between the inflation rate and inequality, for a cross-section of democratic countries.
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Suggested Citation

  • Beetsma, R.M.W.J. & Van Der Ploeg, F., 1992. "Does Inequality Cause Inflation? The Political Economy of Inflation, Taxation and Government Debt," Papers 9230, Tilburg - Center for Economic Research.
  • Handle: RePEc:fth:tilbur:9230

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    References listed on IDEAS

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    Cited by:

    1. repec:aia:aiaswp:wp38 is not listed on IDEAS
    2. Giordano, Raffaela & Tommasino, Pietro, 2011. "What determines debt intolerance? The role of political and monetary institutions," European Journal of Political Economy, Elsevier, vol. 27(3), pages 471-484, September.
    3. Seghezza, Elena & Morelli, Pierluigi, 2014. "Conflict inflation and delayed stabilization," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 171-184.
    4. Christopher Crowe, 2004. "Inflation, Inequality and Social Conflict," CEP Discussion Papers dp0657, Centre for Economic Performance, LSE.
    5. 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.
    6. 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.
    7. Virginia Maestri & Andrea Roventini, 2012. "Inequality and Macroeconomic Factors: A Time-Series Analysis for a Set of OECD Countries," Working Papers 34/2012, University of Verona, Department of Economics.
    8. de Jong, Eelke, 2002. "Why are price stability and statutory independence of central banks negatively correlated? The role of culture," European Journal of Political Economy, Elsevier, vol. 18(4), pages 675-694, November.
    9. Virginia Maestri & Roventini, A. (Andrea), 2012. "GINI DP 30: Stylized Facts on Business Cycles and Inequality," GINI Discussion Papers 30, AIAS, Amsterdam Institute for Advanced Labour Studies.
    10. Manoel Bittencourt, 2012. "Democracy, populism and hyperinflation: some evidence from Latin America," Economics of Governance, Springer, vol. 13(4), pages 311-332, December.
    11. Tsun Se Cheong & Yanrui Wu, 2013. "Globalization and Regional Inequality," Economics Discussion / Working Papers 13-10, The University of Western Australia, Department of Economics.
    12. Bertola, Giuseppe, 2000. "Macroeconomics of distribution and growth," Handbook of Income Distribution,in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 9, pages 477-540 Elsevier.
    13. Desai, Raj M. & Olofsgard, Anders & Yousef, Tarik M., 2005. "Inflation and inequality: does political structure matter?," Economics Letters, Elsevier, vol. 87(1), pages 41-46, April.
    14. Weymark, Diana N., 2007. "Inflation, government transfers, and optimal central bank independence," European Economic Review, Elsevier, vol. 51(2), pages 297-315, February.
    15. Lorenzo Menna & Patrizio Tirelli, 2017. "Optimal inflation to reduce inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 79-94, March.
    16. 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.
    17. FA Al-Marhubi, 2000. "Income inequality and inflation: the cross-country evidence," Contemporary Economic Policy, Western Economic Association International, vol. 18(4), pages 428-439, October.
    18. N'Yilimon Nantob, 2015. "Income Inequality and Inflation in Developing Countries: An Empirical Investigation," Economics Bulletin, AccessEcon, vol. 35(4), pages 2888-2902.
    19. Aisen, Ari & Veiga, Francisco José, 2008. "The political economy of seigniorage," Journal of Development Economics, Elsevier, vol. 87(1), pages 29-50, August.
    20. Frederick Van der Ploeg, 2003. "Do Social Policies Harm Employment and Growth?," CESifo Working Paper Series 886, CESifo Group Munich.
    21. Yoshimichi Murakami & Nobuaki Hamaguchi, 2017. "Peripherality, Inequality, and Economic Development in Latin American Countries," Discussion Paper Series DP2017-08, Research Institute for Economics & Business Administration, Kobe University.
    22. Lorenzo Menna & Patrizio Tirelli, 2017. "Optimal inflation to reduce inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 24, pages 79-94, March.

    More about this item


    economic policy ; financial policy;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents


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