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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.

Suggested Citation

  • Christopher W. Crowe, 2006. "Inflation, Inequality, and Social Conflict," IMF Working Papers 06/158, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:06/158
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Bittencourt, Manoel, 2011. "Inflation and financial development: Evidence from Brazil," Economic Modelling, Elsevier, vol. 28(1), pages 91-99.
    3. Manoel Bittencourt, 2010. "Financial development and inequality: Brazil 1985–1994," Economic Change and Restructuring, Springer, pages 113-130.
    4. Carsten Hefeker, 2010. "Taxation, corruption and the exchange rate regime," Journal of Macroeconomics, Elsevier, pages 338-346.
    5. 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.
    6. Gomes, Orlando, 2006. "Can social interaction contribute to explain business cycles?," MPRA Paper 2848, University Library of Munich, Germany.
    7. repec:rej:journl:v:20:y:2017:i:63:p:72-88 is not listed on IDEAS
    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. Correa Romar & Rao D. Tripati, 2014. "A Heterodox Economics Critique of Financial Liberalization," Journal of Heterodox Economics, De Gruyter Open, vol. 1(1), pages 79-99, June.
    10. Menji, Sisay, 2008. "Determinants of Recent Inflation in Ethiopia," MPRA Paper 29668, University Library of Munich, Germany.
    11. Olmo Silva, 2004. "Entrepreneurship: Can the Jack-of-All-Trades Attitude be Aquired?," CEP Discussion Papers dp0665, Centre for Economic Performance, LSE.

    More about this item

    Keywords

    Political economy; Income distribution; Income inequality; Inflation; Tax rates; inflation tax; inflation tax rate; monetary fund; average inflation; Personal Income; Wealth; and Their Distributions; Capitalist Systems: Political Economy;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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