Inflation, Inequality, and Social Conflict

Author/Editor:

Christopher W. Crowe

Publication Date:

June 1, 2006

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 2006/158

Subject:

Income distribution Income inequality Inflation Personal income Political economy

English

Publication Date:

June 1, 2006

ISBN/ISSN:

9781451864182/1018-5941

Stock No:

WPIEA2006158

Pages:

37

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