The Relationship between the Inflation Rate and Inequality Across U.S. States: A Semiparametric Approach
Quantity and Quality, Forthcoming
18 Pages Posted: 3 Mar 2017 Last revised: 26 May 2018
Date Written: March 2, 2017
This paper uses a cross-state panel for the United States over the 1976 to 2007 period to assess the relationship between income inequality and the inflation rate. Employing a semiparametric instrument variable (IV) estimator, we find that the relationship depends on the level of the inflation rate. A positive relationship occurs only if the states exceed a threshold level of inflation rate. Below this value, inflation rate lowers income inequality. The results suggest that a nonlinear relationship exists between income inequality and the inflation rate.
Keywords: Income inequality, Inflation rate, Semiparametric instrumental variable estimator
JEL Classification: E31, D31, C14
Suggested Citation: Suggested Citation