Academic journal article International Advances in Economic Research

Concerning Kuznets Curves, Persistent Inequality, Inflation, and Redistribution

Academic journal article International Advances in Economic Research

Concerning Kuznets Curves, Persistent Inequality, Inflation, and Redistribution

Article excerpt

JEL E00 * E50

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The evolution of inequality and its impact on aggregate outcomes of an economy is the subject of various strands of past and contemporary economic research. The nature of how inequality changes over time, and its economic impact, is, however, still a matter of some controversy (see, for example, the survey by Zweimuller, Empirica, 2000). A subset of this literature that is of interest from the point of view of this paper relates to the political economy implications of inequality. Specifically, we are interested in the dynamic link between inequality and inflation, viewed from a political economy perspective.

In order to address this issue, we consider dynamic extensions of some political economy models in the literature with persistence in inequality introduced via the mechanism of intergenerational altruism (Dolmas et. al., Canadian Journal of Economics, 2000; Bhattacharya et. al., Canadian Journal of Economics, 2005). Inflation in our models is a mechanism of redistribution, and we find that the link between inequality and inflation within any period or over time depends on institutional and preference related parameters. Furthermore, we find that differences in the initial distributions of wealth can yield a diverse set of patterns for the evolution of the inflation and inequality link. …

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