Unveiling the inflation-income inequality paradox: contrasts across advanced and developing economies

Purpose Both income inequality and inflation can lead to social instability. Does inflation impact income inequality differently between advanced and developing countries? This paper delves into this question by analyzing the effects of inflation on income inequality across a sample of 34 advanced countries and 44 developing nations from 2010 to 2023. Design/methodology/approach Employing both the two-step system GMM estimator and PMG estimation, the study reveals intriguing insights. Findings Firstly, while inflation exacerbates income inequality in advanced countries, it narrows the gap in developing nations. Secondly, economic growth mitigates income inequality in advanced nations but widens it in developing ones. However, infrastructure development increases income inequality in advanced countries but alleviates it in developing ones. Thirdly, trade openness correlates with reduced income inequality across both groups of countries. Originality/value So far, no existing studies empirically approve the opposite effects of inflation on income inequality between developing and advanced economies. The findings offer valuable policy insights for governments in advanced and developing nations in the fight against income inequality.