Abstract
A democratic society in which the distribution of wealth is unequal elects political parties that are likely to represent the interests of poor people. It is in the interests of the clientele of the resulting governments to attempt to levy inflation taxes in order to erode the real value of debt service and redistribute from the rich to the poor. Consequently, inequality and high levels of nominal government debt sow the seeds for inflation. Some cross-country evidence for this proposition is provided.
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Helpful comments of an anonymous referee are gratefully acknowledged. We also thank Lans Bovenberg, Casper van Ewijk, Frank de Jong, Anna Lusardi, André Masson, Theo Nijman, Paul Tang and Sweder van Wijnbergen for stimulating discussions.
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Beetsma, R.M.W.J., Van Der Ploeg, F. Does inequality cause inflation?: The political economy of inflation, taxation and government debt. Public Choice 87, 143–162 (1996). https://doi.org/10.1007/BF00151733
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DOI: https://doi.org/10.1007/BF00151733