How does inflation influence income inequality in Russia?

Abstract

The paper studies the impact of inflation on income inequality in Russian regions. It was revealed that the reduction in inflation from double-digit rate to the Bank of Russia’s target did not help to mitigate inequality, but rather exacerbated it. We identified a group of products which changing price dynamics affects inequality. The price increase may lead to the decline in inequality through redistributive effect. It is shown that in Russia this effect is associated with the channel of unexpected inflation that results in real wealth transfer from more prosperous lenders to less well-off borrowers. The policy of inflation targeting, successfully implemented by the monetary authorities in recent years, has reduced the volatility of inflation and limited the operation of this channel. At the same time, quantitative estimates of the increase in inequality as a result of achieving price stability remain relatively low.

Human Capital, Income Inequality and Economic Variables: A Panel Data Estimation from a Region in Indonesia

“…A further implication of this situation is that the rise in inflation causes an increase in low-income people, and as a consequence, makes their lives worse (Law & Soon, 2020). A contrasting result is shown by Siami-Namini and Hudson (2019) and Kartaev et al (2020). According to Siami-Namini and Hudson (2019), inflation reductions do not help to reduce income inequality, whereas the empirical findings by Kartaev et al (2020) assert that, when inflation rises, then income inequality reduces to reach a minimum level, although income inequality increases in the following periods.…”

“…Additionally, Glomm and Ravikumar (1992) conclude that an increase in private investment and government investment reduce income inequality. However, certain empirical results show that the role of inflation on income inequality is inconclusive, (Sieron, 2017;Siami-Namini & Hudson, 2019;Law & Soon, 2020;Kartaev et al, 2020).…”

Stabilization policy of the state in the post-pandemic period

“…. Moreover, the study (Kartaev et al, 2020) shows that the decrease in annual inflation from double digits to the target of the Bank of Russia did not contribute to the mitigation of inequality, but rather aggravated it. Meanwhile, a study (Wildman, 2021) shows that countries with high levels of income inequality have performed significantly worse in the fight against the COVID-19 outbreak in terms of cases and deaths.…”