Nothing Special   »   [go: up one dir, main page]
Skip to main content
Springer Nature Link
Log in

Inequality and inflation relationship in middle-income countries

  • Research Article
  • Published:
Journal of Computational Social Science Aims and scope Submit manuscript

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
$34.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6

Similar content being viewed by others

Data Availability

We utilized a diverse range of data sets for this article. Additional information can be found in the Appendix 5.

Notes

  1. UNRISD (2013) defines over 0.4 Gini as a worrisome level.

  2. Both market and disposable income.

  3. To be exact, we use a "highly Dimensional" Feasible estimator for linear models with multi-Way fixed effects. In our general model/equation 1, if we consider

    (5)

    then the dummy matrix D could represent country fixed effects across T dimensions, so it has a block representation \(D = [ D_1 D_2,..., D_T]\). The number of levels (states) for the tth dimension is \(g_f\) so \(g=\sum _{t=1}^{T} g_f\). Note that this model allows for country-fixed effects to vary over time [16]. Note that assuming \(f=1\), then this is the regular FE model mentioned above, but with the benefit of correcting for possible inconsistencies in the standard errors (for example, in a standard panel with individual and time-fixed effects, we require both the number of states and periods to grow asymptotically, which is not the case here [49]. We provide a robustness analysis of the suggested method in the literature in Section 4.2.

  4. The turning point may differ from country to country due to the contrasting internal economic dynamics.

  5. The same figures for other countries are available upon request.

References

  1. Acemoglu, D., & Robinson, J. A. (2002). The political economy of the kuznets curve. Review of Development Economics, 6(2), 183–203.

    Article  Google Scholar 

  2. Akarsu, M. Z. (2021). The impact of the Turkish presidential system on the Turkish lira. Journal of Banking and Financial Economics, 1(15), 14–24.

    Article  Google Scholar 

  3. Akarsu, M. Z. (2022). Unequal society: A detailed investigation of wage and income inequality in the United States. Journal of the Knowledge Economy, pp. 1–28.

  4. Al-Shammari, N., Al-Sabaey, M., et al. (2012). Inflation sources across developed and developing countries; panel approach. International Business & Economics Research Journal (IBER), 11(2), 185–194.

    Article  Google Scholar 

  5. Albanesi, S. (2007). Inflation and inequality. Journal of Monetary Economics, 54(4), 1088–1114.

    Article  Google Scholar 

  6. Anghelache, C., Anghel, M.-G., Iacob, S. V., Rădut, C. M., and Strijek, D.-A. (2022). Inflation seriously affects the standard of living of the population. Theoretical & Applied Economics, 29(3).

  7. Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58, 277–297.

    Article  Google Scholar 

  8. Asfuroğlu, D. (2021). The determinants of inflation in emerging markets and developing countries: A literature review. Anadolu Üniversitesi Sosyal Bilimler Dergisi, 21(2), 483–504.

    Article  Google Scholar 

  9. Baum, C. (2011). Xttest2: Stata module to perform breusch-pagan lm test for cross-sectional correlation in fixed effects model.

  10. Beetsma, R. M., & Van Der Ploeg, F. (1996). Does inequality cause inflation? The political economy of inflation, taxation and government debt. Public Choice, 87(1), 143–162.

    Article  Google Scholar 

  11. Binder, C. (2019). Inequality and the inflation tax. Journal of Macroeconomics, 61, 103122.

    Article  Google Scholar 

  12. Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in Dynamic Panel Data models. Journal of Econometrics, 87, 115–143.

    Article  Google Scholar 

  13. Breusch, T. S., & Pagan, A. R. (1980). The lagrange multiplier test and its applications to model specification in econometrics. The Review of Economic Studies, 47(1), 239–253.

    Article  Google Scholar 

  14. Bulíř, A. (2001). Income inequality: Does inflation matter? IMF Staff Papers, 48(1), 139–159.

    Article  Google Scholar 

  15. Coibion, O., Gorodnichenko, Y., Kueng, L., & Silvia, J. (2017). Innocent bystanders? Monetary policy and inequality. Journal of Monetary Economics, 88, 70–89.

    Article  Google Scholar 

  16. Correia, S. (2016). A feasible estimator for linear models with multi-way fixed effects. Preprint at http://scorreia.com/research/hdfe.pdf

  17. Crowe, C. (2006). Inflation, inequality, and social conflict. Available at SSRN 920250.

  18. Desai, R. M., Olofsgård, A., & Yousef, T. M. (2003). Democracy, inequality, and inflation. American Political Science Review, 97(3), 391–406.

    Article  Google Scholar 

  19. Edo, A., Melitz, J. (2019). The primary cause of European inflation in 1500-1700: Precious metals or population? The English evidence.

  20. Erosa, A., & Ventura, G. (2002). On inflation as a regressive consumption tax. Journal of Monetary Economics, 49(4), 761–795.

    Article  Google Scholar 

  21. Espinoza, R., Leon, H., & Prasad, A. (2012). When should we worry about inflation? The World Bank Economic Review, 26(1), 100–127.

    Article  Google Scholar 

  22. Fuest, C. and Riedel, N. (2009). Tax evasion, tax avoidance and tax expenditures in developing countries: A review of the literature. Report prepared for the UK Department for International Development (DFID), 44.

  23. Galli, R. (2001). Is inflation bad for income inequality: The importance of the initial rate of inflation.

  24. Ha, J., Kose, M. A., Ohnsorge, F. (2019). Inflation in emerging and developing economies: Evolution, drivers, and policies. World Bank Publications.

  25. Heer, B. and Süssmuth, B. (2003). Cold progression and its effects on income distribution. Available at SSRN 414043.

  26. Hobijn, B., & Lagakos, D. (2005). Inflation inequality in the united states. Review of Income and Wealth, 51(4), 581–606.

    Article  Google Scholar 

  27. Hoffman, P. T., Jacks, D. S., Levin, P. A., & Lindert, P. H. (2002). Real inequality in EEurope since 1500. The Journal of Economic History, 62(2), 322–355.

    Article  Google Scholar 

  28. Huang, H.-C., Lin, Y.-C., & Yeh, C.-C. (2012). An appropriate test of the Kuznets hypothesis. Applied Economics Letters, 19(1), 47–51.

    Article  Google Scholar 

  29. Jaravel, X. (2021). Inflation inequality: Measurement, causes, and policy implications. Annual Review of Economics, 13, 599–629.

    Article  Google Scholar 

  30. Klasen, S. (2016). What to do about rising inequality in developing countries?

  31. Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review, 45(1), 1–28.

    Google Scholar 

  32. Kuznets, S. (1963). Quantitative aspects of the economic growth of nations: Viii distribution of income by size. Economic Development and Cultural Change, 11(2), 1–80.

    Article  Google Scholar 

  33. Laidler, D., & Parkin, M. (1975). Inflation: A survey. The Economic Journal, 85(340), 741–809.

    Article  Google Scholar 

  34. Milanovic, B. (2016a). Global inequality: A new approach for the age of globalization. Harvard University Press.

  35. Milanovic, B. (2016). Income inequality is cyclical. Nature, 537(7621), 479–482.

    Article  Google Scholar 

  36. Monnin, P. (2014). Inflation and income inequality in developed economies. CEP Working Paper Series.

  37. Nantob, N., et al. (2015). Income inequality and inflation in developing countries: An empirical investigation. Economics Bulletin, 35(4), 2888–2902.

    Google Scholar 

  38. Parkin, V. (1991). Chronic inflation in an industrializing economy: The Brazilian experience. Cambridge University Press.

    Google Scholar 

  39. Persson, T. & Tabellini, G. (1994). Is inequality harmful for growth?, in «the american economic review» 84.

  40. Piketty, T. (2006). The kuznets curve: Yesterday and tomorrow. Understanding poverty, pages 63–72.

  41. Piketty, T. (2014). Capital in the twenty-first century. In Capital in the twenty-first century. Harvard University Press.

  42. Piketty, T. (2015). The economics of inequality. Harvard University Press.

    Book  Google Scholar 

  43. Piketty, T. (2022). A brief history of equality. Harvard University Press.

    Book  Google Scholar 

  44. Piketty, T., & Saez, E. (2003). Income inequality in the united states, 1913–1998. The Quarterly Journal of Economics, 118(1), 1–41.

    Article  Google Scholar 

  45. Plassmann, F., & Khanna, N. (2007). Assessing the precision of turning point estimates in polynomial regression functions. Econometric Reviews, 26(5), 503–528.

    Article  Google Scholar 

  46. Ravallion, M. & Chen, S. (2012). Monitoring inequality. World bank Blogs.

  47. Reinhart, C. & Vegh, C. (1994). Inflation stabilization in chronic inflation countries: The empirical evidence.

  48. Romer, C. D. & Romer, D. H. (1998). Monetary policy and the well-being of the poor.

  49. Stock, J. H., & Watson, M. W. (2008). Heteroskedasticity-robust standard errors for fixed effects panel data regression. Econometrica, 76(1), 155–174.

    Article  Google Scholar 

  50. Sun, H. (2011). Search, distributions, monetary and fiscal policy. Kingston: Queen’s University, Department of Economics, https://www.chicagofed.org/events/2011/index, 17:2021.

  51. Tyson, L., et al. (1998). Commentary: How can economic policy strike a balance between economic efficiency and income equality (pp. 337–343). Income Inequality: Issues and Policy Options.

    Google Scholar 

  52. World Bank (2022). The world bank in middle income countries.

Download references

Author information

Authors and Affiliations

  1. Faculty of Economic Sciences, University of Warsaw, Długa, 44/50, 00-241, Warsaw, Poland

    Mahmut Zeki Akarsu

  2. Feliciano School of Business, Montclair State University, 1 Normal Avenue, Montclair, NJ, 07043, USA

    Orkideh Gharehgozli

Authors
  1. Mahmut Zeki Akarsu
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Orkideh Gharehgozli
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Mahmut Zeki Akarsu.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Appendices

Data Appendix

The data sources employed for the analysis are summarized in Table 5:

Table 5 Data Sources
Full size table

Descriptive statistics

Table 6 provides descriptive statistics.

Table 6 Descriptive Statistics
Full size table

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Akarsu, M.Z., Gharehgozli, O. Inequality and inflation relationship in middle-income countries. J Comput Soc Sc 7, 995–1018 (2024). https://doi.org/10.1007/s42001-024-00263-w

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s42001-024-00263-w

Keywords

Mathematics Subject Classification

Search

Navigation