IDEAS home Printed from https://ideas.repec.org/a/spr/jcsosc/v7y2024i1d10.1007_s42001-024-00263-w.html
   My bibliography  Save this article

Inequality and inflation relationship in middle-income countries

Author

Listed:
  • Mahmut Zeki Akarsu

    (University of Warsaw)

  • Orkideh Gharehgozli

    (Montclair State University)

Abstract

This research investigates the connection between inflation and inequality in 44 middle-income countries between 1996 and 2017. Our main objective is to determine whether a non-linear relationship exists between these two variables by utilizing a quadratic function and various estimation models and approaches found in existing literature. Our findings reveal an inverse U-shaped relationship where inflation initially leads to higher inequality, reaches a turning point, and then leads to lower inequality. We have also calculated the turning points under different scenarios and analyzed the relationship between inflation and inequality for countries with varying initial inflation and income levels. Finally, we have examined the effectiveness of tax policies in reducing the negative effects of inflation on income inequality during the study period.

Suggested Citation

  • Mahmut Zeki Akarsu & Orkideh Gharehgozli, 2024. "Inequality and inflation relationship in middle-income countries," Journal of Computational Social Science, Springer, vol. 7(1), pages 995-1018, April.
    • Handle: RePEc:spr:jcsosc:v:7:y:2024:i:1:d:10.1007_s42001-024-00263-w
    DOI: 10.1007/s42001-024-00263-w
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s42001-024-00263-w
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s42001-024-00263-w?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Melitz, Jacques & Edo, Anthony, 2019. "The Primary Cause of European Inflation in 1500-1700: Precious Metals or Population? The English Evidence," CEPR Discussion Papers 14023, C.E.P.R. Discussion Papers.
    2. Albanesi, Stefania, 2007. "Inflation and inequality," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1088-1114, May.
    3. Xavier Jaravel, 2021. "Inflation Inequality: Measurement, Causes, and Policy Implications," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 599-629, August.
    4. Christina D. Romer & David Romer, 1999. "Monetary policy and the well-being of the poor," Economic Review, Federal Reserve Bank of Kansas City, vol. 84(Q I), pages 21-49.
    5. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
    6. Ho-Chuan (River) Huang & Yi-Chen Lin & Chih-Chuan Yeh, 2012. "An appropriate test of the Kuznets hypothesis," Applied Economics Letters, Taylor & Francis Journals, vol. 19(1), pages 47-51, January.
    7. Parkin,Vincent, 1991. "Chronic Inflation in an Industrializing Economy," Cambridge Books, Cambridge University Press, number 9780521375405, November.
    8. Daron Acemoglu & James A. Robinson, 2002. "The Political Economy of the Kuznets Curve," Review of Development Economics, Wiley Blackwell, vol. 6(2), pages 183-203, June.
    9. 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.
    10. Mr. Christopher W. Crowe, 2006. "Inflation, Inequality, and Social Conflict," IMF Working Papers 2006/158, International Monetary Fund.
    11. Bart Hobijn & David Lagakos, 2005. "Inflation Inequality In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 581-606, December.
    12. Constantin ANGHELACHE & Mădălina-Gabriela ANGHEL & Stefan Virgil IACOB & Cristian Marius RĂDUT & Denis-Arthur STRIJEK, 2022. "Inflation seriously affects the standard of living of the population," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(632), A), pages 223-232, Autumn.
    13. James H. Stock & Mark W. Watson, 2008. "Heteroskedasticity-Robust Standard Errors for Fixed Effects Panel Data Regression," Econometrica, Econometric Society, vol. 76(1), pages 155-174, January.
    14. Branko Milanovic, 2016. "Income inequality is cyclical," Nature, Nature, vol. 537(7621), pages 479-482, September.
    15. Coibion, Olivier & Gorodnichenko, Yuriy & Kueng, Lorenz & Silvia, John, 2017. "Innocent Bystanders? Monetary policy and inequality," Journal of Monetary Economics, Elsevier, vol. 88(C), pages 70-89.
    16. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
    17. Burkhard Heer & Bernd Süssmuth, 2003. "Cold Progression and its Effects on Income Distribution," CESifo Working Paper Series 951, CESifo.
    18. Desai, Raj M. & Olofsgård, Anders & Yousef, Tarik M., 2003. "Democracy, Inequality, and Inflation," American Political Science Review, Cambridge University Press, vol. 97(3), pages 391-406, August.
    19. Mahmut Zeki Akarsu, 2021. "The Impact of the Turkish Presidential System on the Turkish Lira," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(15), pages 14-24, April.
    20. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 1-41.
    21. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 239-253.
    22. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    23. Florenz Plassmann & Neha Khanna, 2007. "Assessing the Precision of Turning Point Estimates in Polynomial Regression Functions," Econometric Reviews, Taylor & Francis Journals, vol. 26(5), pages 503-528.
    24. Klasen, Stephan, 2016. "What to do about rising inequality in developing countries?," PEGNet Policy Briefs 5/2016, PEGNet - Poverty Reduction, Equity and Growth Network, Kiel Institute for the World Economy (IfW Kiel).
    25. Binder, Carola, 2019. "Inequality and the inflation tax," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    26. Hoffman, Philip T. & Jacks, David S. & Levin, Patricia A. & Lindert, Peter H., 2002. "Real Inequality In Europe Since 1500," The Journal of Economic History, Cambridge University Press, vol. 62(2), pages 322-355, June.
    27. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

    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. Kim, Dong-Hyeon & Lin, Shu-Chin, 2023. "Income inequality, inflation and financial development," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 468-487.
    2. Binder, Carola, 2019. "Inequality and the inflation tax," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    3. Mehdi El Herradi & Jakob Haan & Aurélien Leroy, 2023. "Inflation and the Income Share of the Rich: Evidence for 14 OECD Countries," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(1), pages 170-194, March.
    4. Kim, Hyoungjong & Rhee, Dong-Eun, 2022. "The effects of asset prices on income inequality: Redistribution policy does matter," Economic Modelling, Elsevier, vol. 113(C).
    5. Hyunwoo Kim, 2023. "The microfoundation of macroeconomic populism: The effects of economic inequality on public inflation aversion," Economics and Politics, Wiley Blackwell, vol. 35(1), pages 65-96, March.
    6. Nordvik, Frode Martin, 2022. "Inflation news and the poor: The role of ethnic heterogeneity," World Development, Elsevier, vol. 151(C).
    7. Kim, Dong-Hyeon & Lin, Shu-Chin, 2024. "Inflation and wealth inequality," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 893-907.
    8. Bettarelli, Luca & Estefania-Flores, Julia & Furceri, Davide & Loungani, Prakash & Pizzuto, Pietro, 2023. "Energy inflation and consumption inequality," Energy Economics, Elsevier, vol. 124(C).
    9. Ampudia, Miguel & Ehrmann, Michael & Strasser, Georg, 2023. "The effect of monetary policy on inflation heterogeneity along the income distribution," Working Paper Series 2858, European Central Bank.
    10. Ahiadorme, Johnson Worlanyo, 2022. "Monetary policy in search of macroeconomic stability and inclusive growth," Research in Economics, Elsevier, vol. 76(4), pages 308-324.
    11. Bittencourt, Manoel, 2011. "Inflation and financial development: Evidence from Brazil," Economic Modelling, Elsevier, vol. 28(1), pages 91-99.
    12. Edmond Berisha & Rangan Gupta & Orkideh Gharehgozli, 2024. "Inflation–inequality puzzle: is it still apparent?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 51(7), pages 1461-1480, January.
    13. N'Yilimon Nantob, 2015. "Income Inequality and Inflation in Developing Countries: An Empirical Investigation," Economics Bulletin, AccessEcon, vol. 35(4), pages 2888-2902.
    14. Coibion, Olivier & Gorodnichenko, Yuriy & Kueng, Lorenz & Silvia, John, 2017. "Innocent Bystanders? Monetary policy and inequality," Journal of Monetary Economics, Elsevier, vol. 88(C), pages 70-89.
    15. Christopher Crowe, 2004. "Inflation, Inequality and Social Conflict," CEP Discussion Papers dp0657, Centre for Economic Performance, LSE.
    16. Mehmet Balcilar & Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "The relationship between the inflation rate and inequality across U.S. states: a semiparametric approach," Quality & Quantity: International Journal of Methodology, Springer, vol. 52(5), pages 2413-2425, September.
    17. Seghezza, Elena & Morelli, Pierluigi, 2014. "Conflict inflation and delayed stabilization," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 171-184.
    18. Mehdi el Herradi & Jakob de Haan & Aurélien Leroy, 2020. "Inflation and the Income Share of the Rich: Evidence for 12 OECD Countries," CESifo Working Paper Series 8203, CESifo.
    19. Sonan Memon & Irfan A. Qureshi, 2021. "Income inequality and macroeconomic instability," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 758-789, May.
    20. Chen, Siyan & Desiderio, Saul, 2018. "Computational evidence on the distributive properties of monetary policy," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-32.

    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:spr:jcsosc:v:7:y:2024:i:1:d:10.1007_s42001-024-00263-w. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.