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Inflation and Income Inequality: Is Food Inflation Different?

  • James P Walsh
  • Jiangyan Yu
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    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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    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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    1. Ferreira, Francisco H. G. & Leite, Phillippe G. & Litchfield, Julie A., 2008. "The Rise And Fall Of Brazilian Inequality: 1981–2004," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S2), pages 199-230, September.
    2. 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.
    3. 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.
    4. Jonathan S. Skinner, 1987. "Taxation and Output Growth: Evidence from African Countries," NBER Working Papers 2335, National Bureau of Economic Research, Inc.
    5. Datt, Gaurav & Ravallion, Martin, 1998. "Farm productivity and rural poverty in India," FCND discussion papers 42, International Food Policy Research Institute (IFPRI).
    6. Rashid, Shahidur, 2002. "Dynamics of agricultural wage and rice price in Bangladesh," MSSD discussion papers 44, International Food Policy Research Institute (IFPRI).
    7. Jim Dolmas & Gregory W. Huffman & Mark A. Wynne, 1997. "Inequality, inflation, and central bank independence," Working Papers 9705, Federal Reserve Bank of Dallas.
    8. 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.
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