Income Inequality: Does Inflation Matter?

Abstract

This paper contributes to the income inequality literature that is based on the traditional Kuznets model. Level of development, state employment, fiscal redistribution, and price stability are found to improve income inequality in a given country. The positive impact of price stability on income distribution is nonlinear. The reduction in inflation from hyperinflationary levels significantly lowers income inequality, while further reduction toward a very low level of inflation seems to bring about negligible additional gains in the Gini coefficient.

Keywords: inflation, income distribution, Kuznets hypothesis

JEL Classification: D31, O15, E31, C21