Inflation, Inequality, and Social Conflict
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.
|Date of creation:||01 Jun 2006|
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- Ales Bulir, 1998. "Income Inequality; Does Inflation Matter?," IMF Working Papers 98/7, International Monetary Fund.
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