Inflation And Income Inequality:Empirical Analysis Based On Cross-Country Panel Data

Income inequality will lead to the polarization between the rich and the poor and affect one country’s economic development and social stability.In recent years,along with the general intensification of income inequality and the widespread adoption of inflation targeting worldwide,the impact of inflation on income inequality has received increasing attention from theoretical researchers and policy makers.However,the existing literatures on the relationship between inflation and income inequality are still far from consensus.Therefore,this thesis explores the relationship between inflation and income inequality by conducting the combination of theoretical research and empirical analysisThe results of theoretical research show that inflation mainly affects income inequality through price rigidity and wage stickiness,consumption redistribution channel,household balance sheet channel(including portfolio allocation channel,asset price channel and leverage channel)and so on.The mathematical equilibrium model based on the perspective of credit constraints indicates that inflation can influence household output and thus affect income distribution.When the model economy reaches a long-term equilibrium,a higher inflation rate will exacerbate income inequalityIn the empirical analysis parts,this thesis selects the statistical data for 30 representative countries in the global economy from 1990 to 2016 and performs multiple regression analysis by using the fixed-effect panel model.The results show that,in general,high inflation will aggravate income inequality,while a reduction in inflation tends to reduce income inequality or improve income distribution.In different categories of countries,the positive relationship between high inflation and income inequality has always been significant.After considering a series of control variables and conducting a variety of robustness tests,the conclusions of this thesis are still valid.In addition,the expected inflation has significantly increased income inequality,while unanticipated inflation has no significant effect on income inequality.The positive impact of inflation on income inequality mainly works through expected inflation.At the same time,inflation volatility can exacerbate income inequality.Furthermore,fiscal policy is inclined to decrease income inequality and partly offset the positive effect of inflation on income inequality.Therefore,the coordination and cooperation of monetary policies,fiscal policies and so on are important.Based on the results of theoretical research and empirical analysis,this thesis also proposes relevant policy recommendations for improving income inequality from the perspectives of controlling inflation,managing inflation expectation,developing financial markets,coordinating policies and so forth considering China’s specific conditions.