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Federal Reserve Bank of Dallas
Working Papers
Inequality, inflation, and central bank independence
James Dolmas
Gregory W. Huffman
Mark A. Wynne

What can account for the different contemporaneous inflation experiences of various countries, and of the same country over time? We present an analysis of the determination of inflation from a political economy perspective. We document a positive correlation between income inequality and inflation and then present a theory of the determination of inflation outcomes in democratic societies that illustrates how greater inequality leads to greater inflation, owing to a desire by voters for wealth redistribution. We conclude by showing that democracies with more independent central banks tend to have better inflation outcomes for a given degree of inequality.

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James Dolmas & Gregory W. Huffman & Mark A. Wynne, Inequality, inflation, and central bank independence, Federal Reserve Bank of Dallas, Working Papers 9705, 1997.
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Note: Published as: Dolmas, Jim, Gregory W. Huffman and Mark A. Wynne (2000), "Inequality, Inflation, and Central Bank Independence," Canadian Journal of Economics 33 (1): 271-287.
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