دیدگاه اقتصادی سیاسی درباره نابرابری پایدار، تورم و توزیع مجدد

In this paper we examine the dynamics of the link between inequality and inflation from a political economy perspective. We consider a simple dynamic general equilibrium model in which agents vote over the desired inflation rate in each period, and inequality is persistent. Inflation in our model 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. Relative to existing literature, our model leads to more precise predictions about the inflation–inequality correlation. To that end, results in the extant empirical literature on the inflation and inequality link need to be interpreted with caution.

The empirical experience of some countries prior to gaining central bank independence exhibits a great deal of diversity in economic outcomes. A common feature of this diversity, however, is that there is significant fluctuation observed in inflation, inequality and other economic aggregates. Early political economy models captured the idea that these fluctuations in inflation were politically induced. A seminal paper addressing this issue is that of Huffman (1997). In a dynamic equilibrium model constructed to analyse the implications of different degrees of central bank independence, he shows that when agents are permitted to vote on the desired inflation rate and labour taxes to finance government spending, there is a great deal of fluctuation in inflation, output and investment. On the other hand, if the central bank is independent in the sense that agents are not allowed to vote on inflation and taxes, these fluctuations do not arise. It is then of interest to explore why such fluctuations arise simply as a result of allowing political economy influences on the determination of central bank policies. That is, the behaviour of economic agents who cause these fluctuations must have an underlying economic rationale. Subsequent strands of literature have therefore focussed on inequality as the key mechanism behind these outcomes. The theoretical rationale provided in Dolmas et al. (2000), for example, is that inflation is a mechanism of redistribution, which implies that in the presence of inequality there is likely to be a greater degree of political pressure exerted on monetary authorities to use inflation as a re-distributive mechanism. Similar in spirit to this paper is the extension considered in Bhattacharya et al. (2005), in which allowance is made for the fact that some agents in the economy can shield themselves from inflation by holding assets that are not subject to the inflation tax. They find that the relationship between inflation and inequality is non-monotonic, in contrast to the positive relationship suggested by Dolmas et al. (2000). Both these papers however, do not explore the dynamic implications of their models. In that sense, they do not directly address the inflation–inequality link as a source of the fluctuations that are seen in the data. Furthermore, while Huffman's (1997) model examines the dynamic patterns in inflation that are politically induced, these fluctuations are typically of a very stylized nature. To that end, a combination of the different approaches described above is warranted. Ideally we would like a model to be dynamic as in Huffman's (1997) approach, while at the same time providing a scope to examine the inflation–inequality link considered in Bhattacharya et al. (2005). This paper therefore examines a model which is an extension of Bhattacharya et al. (2005). Specifically, we incorporate dynamics by allowing agents to leave bequests to the next generation. Furthermore, the alternative mechanism of redistribution considered in our model is that of progressive taxation. This is of particular importance given that Bhattacharya et al. (2005) consider the somewhat regressive alternative of lump-sum taxes, which is likely to produce a bias towards a positive inflation–inequality correlation.1 (Albanesi, 2007). In other words, extant political economy models do not attempt to examine the inflation–inequality relationship in the presence of alternative means of redistribution. A priori, however, this is very important — inflation as a mechanism of redistribution would be relatively unimportant if other mechanisms of redistribution were sufficient. Secondly, empirical evidence of the experience of some Latin American and other developing economies shows periods of cycles in inequality and annual average rates of inflation, where inequality is measured using the Gini coefficients of income distributions. Such cycles were experienced during periods before the implementation of macroeconomic reforms in relation to promoting the independence of central banks. See for example, Bittencourt, 2009, Acemoglu et al., 2003, Cukierman et al., 1992 and Cukierman et al., 2002. We also present some descriptive statistics on the inflation and inequality patterns of some Latin American countries in Fig. 1. In the case of Brazil, for example, movements in inflation exhibit a similar pattern to movements in inequality. On the other hand, the inflation–inequality pattern in Mexico shows periods of upward movement in inflation coinciding with downward movement in inequality. Other countries appear to exhibit a mixture of both types of patterns. That is, there are some periods in which there is co-movement in these measures, while in others these measures show a negative link. Full-size image (77 K) Fig. 1. Inflation and inequality in some Latin American countries. Figure options Given that these patterns occurred in periods roughly coinciding with times in which central banks of these countries were subject to political pressure, it is of interest to study models that explain such fluctuation as a result of the political process. As we have mentioned above, the models in Huffman, 1996 and Huffman, 1997 partially address this issue in the sense that they produce politically induced cycles in the time path of economic aggregates. We have also noted that these patterns are stylized, and the underlying theory is not designed specifically to address the type of diversity that is observed in the data. In particular, while Huffman's work focuses more on the individual time path of economic aggregates, it does not specifically consider the inflation and inequality nexus from a dynamic point of view. To address the above issues, we consider a simple dynamic general equilibrium model in which agents vote over the desired inflation rate in each period, and inequality is persistent. This model is a variant of some of the static political economy models discussed above, viz Dolmas et al., 2000 and Bhattacharya et al., 2005, with intergenerational bequests introduced as a mechanism of persistence in inequality. A priori, depending on initial conditions, and the environment in question, there are several possibilities for the evolution of the inflation and inequality link, which we will briefly discuss below. These possibilities arise particularly in the case where the static link between inflation and inequality is non-monotonic and stem from an interesting feature of these models: viz., the evolution of inequality in these models is endogenous. That is, a given level of inequality influences the desired inflation rate, which in turn determines the inequality of the wealth distribution in the subsequent period, which impacts on the next period inflation rate, and so on. For instance, we could conjecture that depending on the initial conditions, the following scenario may emerge. In the presence of persistent inequality generated via intergenerational linkages, initial increases may lead to higher inflation, which could either reduce inequality through the redistributive process, or bring down the rate of increase in inequality. In the latter case, further increases in inflation would eventually reduce inequality, leading to subsequent reductions in inflation due to politico-economic reasons. One can also speculate on the possibility of cycles in which the pattern initially appears to exhibit an inverted-U shaped curve, and then reverses itself. Our model tells us that such patterns are indeed possible depending on the initial conditions of the economy. In some cases there appear to be limit cycles; the pattern for inequality resembles a series of inverted-U shaped curves. That is, inequality increases and then decreases over time, and this pattern appears to repeat itself.2 Interestingly, in some cases, the corresponding pattern for inflation may also be very similar. In other cases, inequality initially appears to follow an inverted-U shaped pattern, and then increases again; the corresponding pattern for inflation is similar. The model also provides a political economy rationale for why the patterns in inequality can reverse over time. An implication of this feature of the model is that, depending on the data set in question, one can find either a U-shaped or inverted-U shaped relationship for the dynamics of inequality, thus providing a political economy rationale for the specific patterns that have been identified in the data. To some degree, our model is then capable of producing patterns that are at least qualitatively similar to what we observe in Fig. 1. We view the results of our model and its analysis as an important exploratory step in the direction of future research in this area. Ideally, to be able to produce empirically testable hypotheses, one needs to design a fully realized economic environment, amenable to calibration, and endowed with various institutional and structural features of transitional economies. For example, we would like to consider a production economy where taxes have distortionary effects, and the costs associated with inflation-shielded assets are specified more realistically. However, before one undertakes such a step, it is natural to explore a simple environment similar to that of our model. Introducing too many complex features in one step obscures the individual impact of these features. Therefore, in common with conventional approaches to the process of modelling, we have chosen to start with an economic environment that is simple and intuitive, albeit relatively stylized. Secondly, the development of a fully realized environment requires progress not only along theoretical dimensions, but also on the empirical front. For example, a detailed analysis of the empirical patterns should inform directions for theoretical research and vice versa. However, due to limited data availability, it is difficult to study the patterns mentioned above. Specifically, while there is a long span of data for inflation, at various frequencies, this is not true of measures of inequality. For this reason, one has to leave the above mentioned suggestions for future empirical and theoretical investigations. We believe that the suggested agenda of research is likely to be very fruitful. Even the somewhat stylized model of this paper leads to relatively more precise predictions in relation to various parameters and the inflation–inequality correlation. That is, the corresponding predictions in the extant literature are not as clear-cut. As we see in our numerical simulations, an economy with an initial Gini coefficient falling within the range in which the static link between inflation and inequality is positive, can produce a dynamic pattern over time that is characterized by a negative inflation–inequality correlation. The pattern actually depends critically on the initial conditions as characterized by other parameters of the model such as the tax rate and the fixed cost of the inflation-shielded asset. Our extension of some of the static models in the extant literature brings out this point, and therefore leads to a better understanding of the political economy link between inflation and inequality. Subsequent sections of this paper are organized as follows. In Section 2, we present a simple extension of some static political economy models in the literature, modified to include mechanisms that allow for persistence in inequality, which in turn also enables a meaningful dynamic analysis of such models. We also include income and wealth taxation, but abstract from political economy determination of these mechanisms in order to simplify our analysis. In Section 3 we present an analysis of the results based on numerical simulations of our model. Section 4 concludes.

In this paper we examine the dynamics of the link between inequality and inflation from a political economy perspective. This exploration is motivated, in part, by the diversity of the empirical experience of some countries prior to gaining central bank independence. A common feature, amidst this diversity, however, is that there is a great deal of fluctuation observed in inflation and inequality. Early political economy models captured the idea that these fluctuations were politically induced. However, such models did not capture the diversity of these patterns. We believe that our model is an important exploratory step in this direction. Specifically, we consider a simple dynamic general equilibrium model in which agents vote over the desired inflation rate in each period, and inequality is persistent. Inflation in our model is a mechanism of redistribution, and we find that the link between inequality and inflation in any period depends on institutional features such as the extent of progressive taxation in the economy, or the cost of adopting technologies that shield agents from inflation. We find that differences in the initial distributions of wealth and income can yield a diverse set of patterns for the evolution of the inflation and inequality link. In some cases the pattern for inequality resembles a series of inverted-U shaped curves – i.e., inequality increases and then decreases over time, and this pattern appears to repeat itself. Interestingly, in some cases the corresponding pattern for inflation may also be very similar. In other cases, inequality initially appears to follow an inverted-U shaped pattern, and then increases again; the corresponding pattern for inflation is similar. The above experiments serve to underline the fact that the dynamic implications of a fairly simple political economy model of inflation and inequality can be very complex. Multiple equilibria are possible, and there is a great deal of diversity in the nature of these equilibria. Furthermore, extant political economy models do no not attempt to examine the inflation–inequality relationship in the presence of alternative means of redistribution. A priori, however, this is very important – inflation as a mechanism of redistribution would be relatively unimportant if other mechanisms of redistribution were sufficient. In our model this idea is captured by including a progressive tax parameter. In addition, our model leads to several clear-cut empirical predictions in relation to various parameters and the inflation–inequality correlation. In existing literature, however, the empirical predictions are somewhat imprecise, given the static nature of these models. As we have seen in our numerical simulations, an economy with an initial Gini coefficient falling within the range in which the static link between inflation and inequality is positive, can produce a dynamic pattern over tome that is characterized by a negative inflation–inequality correlation. The pattern depends critically on the initial conditions as characterized by other parameters in the model, such as the tax rate, and the cost of the inflation-shielded asset. Our extension of some of the static models in the extant literature brings out this point, and therefore leads to a better understanding of the political economy link between inflation and inequality.