IDEAS home Printed from https://ideas.repec.org/a/bla/coecpo/v18y2000i4p428-439.html
   My bibliography  Save this article

Income inequality and inflation: the cross‐country evidence

Author

Listed:
  • FA Al‐Marhubi

Abstract

Different strands of the political economy approach to macroeconomic policy imply a link between income inequality and inflation. This article tests this proposition using a newly assembled data set on income distribution. The results show that income inequality is associated with higher inflation. This association, although not economically large, holds for democracies as well as nondemocracies. Sensitivity analysis suggests that the results are not due to measurement error, reverse causation, or omitted variables.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:coecpo:v:18:y:2000:i:4:p:428-439
    DOI: 10.1111/j.1465-7287.2000.tb00039.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1465-7287.2000.tb00039.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1465-7287.2000.tb00039.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1169-1189.
    2. Bleaney, Michael, 1996. "Central Bank Independence, Wage-Bargaining Structure, and Macroeconomic Performance in OECD Countries," Oxford Economic Papers, Oxford University Press, vol. 48(1), pages 20-38, January.
    3. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    4. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    5. Fischer, Stanley & Easterly, William, 1990. "The Economic of the Government Budget Constraint," The World Bank Research Observer, World Bank, vol. 5(2), pages 127-142, July.
    6. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    7. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 407-443.
    8. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
    9. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," The World Bank Economic Review, World Bank, vol. 10(3), pages 565-591, September.
    10. Beetsma, Roel M W J & van der Ploeg, Frederick, 1996. "Does Inequality Cause Inflation?: The Political Economy of Inflation, Taxation and Government Debt," Public Choice, Springer, vol. 87(1-2), pages 143-162, April.
    11. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    12. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
    13. Alesina, Alberto & Tabellini, Guido, 1992. "Positive and normative theories of public debt and inflation in historical perspective," European Economic Review, Elsevier, vol. 36(2-3), pages 337-344, April.
    14. Cukierman Alex, 1992. "CENTRAL BANK STRATEGY, CREDIBILITY, AND INDEPENDANCE: THEORY AND EVIDENCE: Compte Rendu par Dominique Cariofillo," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 3(4), pages 581-590, December.
    15. Lane, Philip R., 1997. "Inflation in open economies," Journal of International Economics, Elsevier, vol. 42(3-4), pages 327-347, May.
    16. Al-Marhubi, Fahim, 1997. "A note on the link between income inequality and inflation," Economics Letters, Elsevier, vol. 55(3), pages 317-319, September.
    17. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(4), pages 869-903.
    18. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," The World Bank Economic Review, World Bank, vol. 10(3), pages 565-591, September.
    19. Alesina, Alberto & Özler, Sule & Roubini, Nouriel & Swagel, Phillip, 1996. "Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
    20. Haggard, Stephan & Webb, Steven B, 1993. "What Do We Know about the Political Economy of Economic Policy Reform?," The World Bank Research Observer, World Bank, vol. 8(2), pages 143-168, July.
    21. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    22. Edwards, Sebastian & Tabellini, Guido, 1991. "Explaining fiscal policies and inflation in developing countries," Journal of International Money and Finance, Elsevier, vol. 10(1, Supple), pages 16-48, March.
    23. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, April.
    24. Cukierman, Alex & Edwards, Sebastian & Tabellini, Guido, 1992. "Seigniorage and Political Instability," American Economic Review, American Economic Association, vol. 82(3), pages 537-555, June.
    25. Jeffrey D. Sachs, 1989. "Social Conflict and Populist Policies in Latin America," NBER Working Papers 2897, National Bureau of Economic Research, Inc.
    26. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    27. Levi, Maurice D, 1973. "Errors in the Variables Bias in the Presence of Correctly Measured Variables," Econometrica, Econometric Society, vol. 41(5), pages 985-986, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Kim, Dong-Hyeon & Lin, Shu-Chin, 2023. "Income inequality, inflation and financial development," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 468-487.
    3. Osama D. Sweidan, 2023. "Geopolitical Risk and Income Inequality: Evidence from the US Economy," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 169(1), pages 575-597, September.
    4. Bhattacharya, Joydeep, 2003. "Monetary Policy And The Distribution Of Income," Staff General Research Papers Archive 11072, Iowa State University, Department of Economics.
    5. Fiorio, Carlo V. & Saget, Catherine., 2010. "Reducing or aggravating inequality? : Preliminary findings from the 2008 financial crisis," ILO Working Papers 994564873402676, International Labour Organization.
    6. repec:ilo:ilowps:456487 is not listed on IDEAS
    7. Garc𨀍 & Prieto-Alaiz & Sim, 2013. "The influence of macroeconomic factors on personal income distribution in developing countries: a parametric modelling approach," Applied Economics, Taylor & Francis Journals, vol. 45(30), pages 4323-4334, October.
    8. Osama D. Sweidan, 2023. "The Effect of Geopolitical Risk on Income Inequality: Evidence from a Panel Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 167(1), pages 47-66, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Philipp F. M. Baumann & Enzo Rossi & Alexander Volkmann, 2020. "What Drives Inflation and How: Evidence from Additive Mixed Models Selected by cAIC," Papers 2006.06274, arXiv.org, revised Aug 2022.
    2. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482, Elsevier.
    3. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    4. Kenneth Scheve, 2003. "Public demand for low inflation," Bank of England working papers 172, Bank of England.
    5. Miljkovic, Dragan & Rimal, Arbindra, 2008. "The impact of socio-economic factors on political instability: A cross-country analysis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(6), pages 2454-2463, December.
    6. Eijffinger, Sylvester & Schaling, Eric & Hoeberichts, Marco, 1998. "Central bank independence: A sensitivity analysis," European Journal of Political Economy, Elsevier, vol. 14(1), pages 73-88, February.
    7. Mazhar, Ummad & Jafri, Juvaria, 2014. "Does an informal sector reduce the economic dividends of political stability? Empirical evidence," MPRA Paper 60764, University Library of Munich, Germany.
    8. Paresh Kumar Narayan & Seema Narayan & Sagarika Mishra, 2011. "Do Remittances Induce Inflation? Fresh Evidence from Developing Countries," Southern Economic Journal, John Wiley & Sons, vol. 77(4), pages 914-933, April.
    9. Hayat, Zafar & Balli, Faruk & Rehman, Muhammad, 2017. "The relevance and relative robustness of sources of inflation bias in Pakistan," Economic Modelling, Elsevier, vol. 63(C), pages 283-303.
    10. Garriga, Ana Carolina & Rodriguez, Cesar M., 2020. "More effective than we thought: Central bank independence and inflation in developing countries," Economic Modelling, Elsevier, vol. 85(C), pages 87-105.
    11. Chiquiar Daniel & Ibarra-Ramírez Raúl, 2019. "Central Bank Independence and Inflation: An Empirical Analysis," Working Papers 2019-18, Banco de México.
    12. Berlemann, Michael & Hielscher, Kai, 2009. "Measuring Effective Monetary Policy Conservatism," Working Paper 89/2009, Helmut Schmidt University, Hamburg.
    13. Mahir Binici & Yin-Wong Cheung & Kon S. Lai, 2011. "Trade Openness, Market Competition, and Inflation: Some Sectoral Evidence from OECD Countries," CESifo Working Paper Series 3690, CESifo.
    14. Timothy Besley & Torsten Persson, 2011. "Pillars of Prosperity: The Political Economics of Development Clusters," Economics Books, Princeton University Press, edition 1, number 9624.
    15. Luis Jácome & Francisco Vázquez, 2005. "Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean," Macroeconomics 0508011, University Library of Munich, Germany.
    16. Serhan Cevik & Tianle Zhu, 2020. "Trinity Strikes Back: Monetary Independence And Inflation In The Caribbean," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(3), pages 375-388, April.
    17. Weymark, Diana N., 2007. "Inflation, government transfers, and optimal central bank independence," European Economic Review, Elsevier, vol. 51(2), pages 297-315, February.
    18. Hong-Ghi Min, 2002. "Inequality, the price of nontradables, and the real exchange rate : theory and cross-country evidence," Policy Research Working Paper Series 2758, The World Bank.
    19. Binder, Carola, 2019. "Inequality and the inflation tax," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    20. Donato Masciandaro & Davide Romelli, 2018. "Beyond the Central Bank Independence Veil: New Evidence," BAFFI CAREFIN Working Papers 1871, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:coecpo:v:18:y:2000:i:4:p:428-439. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/weaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.