The effect of inflation on income distribution in developed and developing countries: 1990-2017

The unfair distribution of income is one of the most fundamental macroeconomic problems of many countries in the world. This problem may differ according to the development level of the countries. It is also important to determine the factors that cause income distribution inequality and to what extent these factors affect income inequality. On this occasion, policy makers and implementers of countries can develop policies to reduce and eliminate income distribution injustices and take steps towards more effective implementation of these policies. Quantitative studies conducted by other researchers also reveal that there are many factors that directly and explicitly affect income distribution injustices in the literature. However, the effect of inflation, which is the main subject of the study, on income distribution injustice has been a controversial issue. For this reason, this study attempts to analyze the effect of inflation on income distribution by including 24 developed countries in the upper income group and 19 developing countries in the upper-middle and lower-middle income groups. The data of various variables of the countries includes the data between 1990 and 2017. Developed countries included in the model include the USA, Germany, Australia, Austria, Belgium, United Kingdom, Czech Republic, Denmark, Finland, France, Netherlands, Ireland, Spain, Israel, Sweden, Switzerland, Italy, Canada, Luxembourg, Norway, Panama, Sile, Uruguay and Greece. Developing countries included in the model include Belarus, Bolivia, Brazil, Dominican, Ecuador, Indonesia, South Africa, India, Honduras, Colombia, Costa Rica, Malaysia, Mexico, Paraguay, Peru, Russia, Thailand, Turkey and Ukraine. Among these, Bolivia, India, Honduras and Ukraine are in the lower-middle income group in the World Bank rankings, while others are in the upper-middle income group. As a result, the panel time series analysis used in the study was conducted with 24 upper-income countries, 19 upper-middle and lower-middle-income countries. According to the results of the study, it was concluded that inflation, which is our main variable in the developed country group, as well as GDP per capita, trade openness and final public expenditures are significant at 95% confidence interval. In the developing country group, it is concluded that inflation rate, which is the main variable, as well as GDP per capita and final public expenditures are significant at 95% confidence interval. A 1% increase in the inflation rate in developed countries reduces the Gini coefficient by 0.00028. In other words, increase in inflation makes a positive contribution by reducing the problem of income inequality in developed countries. However, a 1% increase in inflation rates in developing countries increases the Gini coefficient by 0.0000076. In other words, unlike developed countries, inflation has a detrimental effect on income distribution. There are studies in the literature that support both situations. A 1% increase in per capita GDP in the developed countries group decreases the Gini coefficient by 0.0000012. In other words, as income per capita increases, income distribution injustices decrease in developed countries. In other words, as income per capita increases, income distribution injustices decrease in developed countries. It makes a positive contribution. In developing countries, a 1% increase in per capita GDP decreases the Gini coefficient by 0.0000044. In developing countries, as income per capita increases, injustice in income distribution decreases. There is also a positive effect of per capita income increase. A 1% increase in final public expenditures in developed countries increases the Gini Coefficient by 0.05. In other words, it negatively affects the justice of income distribution. A 1% increase in final public expenditures in developing countries increases the Gini Coefficient by 0.020. It has been determined that final public expenditures have a negative impact on income distribution in both country groups. Finally, a 1% increase in trade openness in the developed country group increases the Gini coefficient by 0.00040. In other words, it has been found to have a negative effect on income distribution. In the developing country group, this variable was found to be insignificant on income inequality.