## Inflation and Income Distribution: Further Evidenceon Empirical Links

_IMF Working Papers, August 1, 1995_

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## Bibliographic details
- Authors: Anne Marie Gulde
- Published: August 1, 1995
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451850826.001

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### Summary
- This paper examines the effects of inflation and associated financial instability on income distribution.
- Using both pooled cross country and single country time series models, the paper shows that:
  - the level of inflation,
  - inflation variability, and
  - the variability of the nominal exchange rate
  are shown to impact negatively on overall income equality.
- Looking at disaggregate measures of income distribution, the question of whether inflation is a progressive or regressive tax is found to be negatively correlated with:
  - the level of development, and
  - the sophistication of the financial structure.
- The paper argues that these results point towards financial variables as a partial way of rectifying the generally poor explanatory power of both cross-country and time series models of income distribution.

### Key empirical findings
- Level of inflation is negatively associated with overall income equality.
- Inflation variability is negatively associated with overall income equality.
- Variability of the nominal exchange rate is negatively associated with overall income equality.
- The relationship between inflation and its incidence on different income groups (progressive vs. regressive) is negatively correlated with:
  - level of development, and
  - sophistication of the financial structure.

### Methodology (as described)
- Empirical approach uses:
  - pooled cross country models, and
  - single country time series models.
- Disaggregate measures of income distribution are analyzed to assess the progressive vs. regressive incidence of inflation.

### Analytical implication
- Financial variables (e.g., measures of financial structure and sophistication) can help improve the explanatory power of models linking inflation and income distribution.
- The interaction between inflation dynamics and financial structure is central to understanding distributional outcomes.

### Policy-relevant interpretation
- Strengthening financial structure and sophistication is implied as a partial avenue to mitigate the negative distributional effects of inflation and inflation instability.
- Addressing inflation variability and nominal exchange rate volatility can be important for preserving income equality.

*Source: Inflation and Income Distribution: Further Evidenceon Empirical Links, Anne Marie Gulde, IMF Working Papers 1995, 086 (August 1, 1995).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/inflation-and-income-distribution-further-evidenceon-empirical-links-1298_