The Unassuming Economist

From a paper by Mihaela Simionescu:

“The Covid-19 pandemic enhanced economic issues like income/wealth inequality and inflation, with negative consequences that should be managed properly by policymakers. The relationship between inflation and economic inequality has been extensively studied, primarily through the lens of income disparities. However, the implications for wealth inequality, a more potent determinant of economic opportunity, social mobility, and political influence, remain under-explored. This study bridges this gap by empirically investigating the nonlinear association between inflation and income/wealth inequality, as proxied by top/bottom income/wealth shares in the EU in the period 1990–2022. The findings reveal a non-linear, U-shaped, association between inflation/expected inflation and top/bottom wealth and income shares for the overall EU, while inflation has no significant impact on the Gini index. However, there are few countries for which the U pattern is not validated. In addition, in general, joining the Eurozone decreased income and wealth inequality, and did not affect the wealth and income of the bottom 50% of the population. To elucidate the underlying mechanisms, a pathway analysis is conducted, suggesting that self-employment plays a pivotal role in transmitting the effects of inflation to income/wealth inequality. Moreover, immigration has a partial mediation effect in the relationship between wealth inequality and education.”